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<SEC-DOCUMENT>0000950117-02-000406.txt : 20020414
<SEC-HEADER>0000950117-02-000406.hdr.sgml : 20020414
ACCESSION NUMBER:		0000950117-02-000406
CONFORMED SUBMISSION TYPE:	N-2/A
PUBLIC DOCUMENT COUNT:		7
FILED AS OF DATE:		20020225

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			COHEN & STEERS QUALITY INCOME REALTY FUND INC
		CENTRAL INDEX KEY:			0001157842

	FILING VALUES:
		FORM TYPE:		N-2/A
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-68150
		FILM NUMBER:		02557362

	BUSINESS ADDRESS:	
		STREET 1:		757 THIRD AVENUE 20TH FLOOR
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10017
		BUSINESS PHONE:		2124469155

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	COHEN & STEERS INCOME REALTY FUND INC
		DATE OF NAME CHANGE:	20010821

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			COHEN & STEERS QUALITY INCOME REALTY FUND INC
		CENTRAL INDEX KEY:			0001157842

	FILING VALUES:
		FORM TYPE:		N-2/A
		SEC ACT:		1940 Act
		SEC FILE NUMBER:	811-10481
		FILM NUMBER:		02557363

	BUSINESS ADDRESS:	
		STREET 1:		757 THIRD AVENUE 20TH FLOOR
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10017
		BUSINESS PHONE:		2124469155

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	COHEN & STEERS INCOME REALTY FUND INC
		DATE OF NAME CHANGE:	20010821
</SEC-HEADER>
<DOCUMENT>
<TYPE>N-2/A
<SEQUENCE>1
<FILENAME>a31897.txt
<DESCRIPTION>COHEN & STEERS QUALITY INCOME REALTY FUND N-2/A
<TEXT>





<PAGE>


   AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 25, 2002


                                               SECURITIES ACT FILE NO. 333-68150
                                       INVESTMENT COMPANY ACT FILE NO. 811-10481
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                              -------------------

                                    FORM N-2

(CHECK APPROPRIATE BOX OR BOXES)

[ ] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

[x] PRE-EFFECTIVE AMENDMENT NO. 3

[ ] POST-EFFECTIVE AMENDMENT NO.

                                     AND/OR

[ ] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

[x] AMENDMENT NO. 3

                              -------------------

                                 COHEN & STEERS
                        QUALITY INCOME REALTY FUND, INC.
               (FORMERLY COHEN & STEERS INCOME REALTY FUND, INC.)
               (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

                              -------------------

                                757 THIRD AVENUE
                            NEW YORK, NEW YORK 10017
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 832-3232

                                ROBERT H. STEERS
                    COHEN & STEERS CAPITAL MANAGEMENT, INC.
                                757 THIRD AVENUE
                            NEW YORK, NEW YORK 10017
                                 (212) 832-3232
                    (NAME AND ADDRESS OF AGENT FOR SERVICE)

                              -------------------

                                WITH COPIES TO:

<Table>
<S>                                              <C>
              SARAH E. COGAN, ESQ.                         LEONARD B. MACKEY, JR., ESQ.
           SIMPSON THACHER & BARTLETT                   CLIFFORD CHANCE ROGERS & WELLS LLP
              425 LEXINGTON AVENUE                               200 PARK AVENUE
            NEW YORK, NEW YORK 10017                         NEW YORK, NEW YORK 10166
                 (212) 455-2000                                   (212) 878-8000
</Table>

                              -------------------

    APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement.

    If any securities being registered on this form will be offered on a delayed
or continuous basis in reliance on Rule 415 under the Securities Act of 1933, as
amended, other than securities offered in connection with a dividend
reinvestment plan, check the following box. [ ]
                              -------------------


        CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

<Table>
<Caption>
================================================================================================================
                                                             PROPOSED            PROPOSED
                                                             MAXIMUM             MAXIMUM
         TITLE OF SECURITIES             AMOUNT BEING     OFFERING PRICE        AGGREGATE         AMOUNT OF
          BEING REGISTERED              REGISTERED(1)       PER SHARE        OFFERING PRICE   REGISTRATION FEE(2)
- ----------------------------------------------------------------------------------------------------------------
<S>                                     <C>                <C>              <C>              <C>
Common Shares, $.001 par value........   40,000,000 Shares     $15.00          $600,000,000        $55,200
================================================================================================================
</Table>


(1) Estimated solely for the purpose of calculating the registration fee.

(2) Includes the registration fees of $264 and $5,256 previously paid on August
    22, 2001 and January 23, 2002, respectively.
                              -------------------

    THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

================================================================================









<PAGE>

                COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
                             CROSS REFERENCE SHEET
                              PART A -- PROSPECTUS

<Table>
<Caption>
                          ITEM IN PART A OF FORM N-2
                            SPECIFIED IN PROSPECTUS                       LOCATION IN PROSPECTUS
                            -----------------------                       ----------------------
<S>          <C>                                                    <C>
Item 1.      Outside Front Cover..................................  Cover Page
Item 2.      Inside Front and Outside Back Cover Page.............  Cover Page; Inside Front Cover
                                                                      Page; Outside Back Cover Page
Item 3.      Fee Table and Synopsis...............................  Fund Expenses
Item 4.      Financial Highlights.................................  Inapplicable
Item 5.      Plan of Distribution.................................  Cover Page; Prospectus Summary;
                                                                      Underwriting
Item 6.      Selling Shareholders.................................  Inapplicable
Item 7.      Use of Proceeds......................................  Use of Proceeds; Investment
                                                                      Objectives and Policies
Item 8.      General Description of the Registrant................  Cover Page; Prospectus Summary;
                                                                      The Fund; Investment Objectives
                                                                      and Policies; Use of Leverage;
                                                                      Principal Risks of the Fund;
                                                                      Additional Risk Considerations;
                                                                      Repurchase of Shares
Item 9.      Management...........................................  Prospectus Summary; Management of
                                                                      the Fund
Item 10.     Capital Stock, Long-Term Debt, and Other
               Securities.........................................  Investment Objectives and
                                                                      Policies; Use of Leverage;
                                                                      Dividends and Distributions;
                                                                      Taxation; Description of Shares
Item 11.     Defaults and Arrears on Senior Securities............  Inapplicable
Item 12.     Legal Proceedings....................................  Inapplicable
Item 13.     Table of Contents of the Statement of Additional
               Information........................................  Table of Contents of the Statement
                                                                      of Additional Information
</Table>

                 PART B -- STATEMENT OF ADDITIONAL INFORMATION

<Table>
<Caption>
                                                                          LOCATION IN STATEMENT
                          ITEMS IN PART B OF FORM N-2                   OF ADDITIONAL INFORMATION
                          ---------------------------                   -------------------------
<S>          <C>                                                    <C>
Item 14.     Cover Page...........................................  Cover Page
Item 15.     Table of Contents....................................  Table of Contents
Item 16.     General Information and History......................  Inapplicable
Item 17.     Investment Objectives and Policies...................  Investment Objectives and
                                                                      Policies; Investment Restrictions
Item 18.     Management...........................................  Management of the Fund;
                                                                      Compensation of Directors and
                                                                      Certain Officers; Investment
                                                                      Advisory and Other Services
Item 19.     Control Persons and Principal Holders of
               Securities.........................................  Management of the Fund
Item 20.     Investment Advisory and Other Services...............  Investment Advisory and Other
                                                                      Services
Item 21.     Brokerage Allocation and Other Practices.............  Portfolio Transactions and
                                                                      Brokerage; Determination of Net
                                                                      Asset Value
Item 22.     Tax Status...........................................  Taxation
Item 23.     Financial Statements.................................  Report of Independent Accountants;
                                                                      Statement of Assets and
                                                                      Liabilities

</Table>
                                     PART C -- OTHER INFORMATION

Item 24-33.  have been answered in Part C of this Registration
               Statement











<PAGE>


THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.


                 SUBJECT TO COMPLETION, DATED FEBRUARY 25, 2002


PROSPECTUS                                   SHARES

                                                           COHEN & STEERS
                                                    --------------------------
                                                    QUALITY INCOME REALTY FUND


                             COHEN & STEERS QUALITY
                            INCOME REALTY FUND, INC.
                                 COMMON SHARES
                                $15.00 PER SHARE

                               -----------------

   Investment Objectives. Cohen & Steers Quality Income Realty Fund, Inc. (the
'Fund') is a recently-organized, non-diversified, closed-end management
investment company.

    Our primary investment objective is high current income through investment
    in real estate securities; and

    Our secondary investment objective is capital appreciation.

   Portfolio Contents. Under normal market conditions, we will invest at least
90% of our total assets in common stocks, preferred stocks and other equity
securities issued by real estate companies, such as 'real estate investment
trusts' ('REITs'). At least 80% of our total assets will be invested in income
producing equity securities issued by high quality REITs. See 'Investment
Objectives and Policies.' We may invest up to 10% of our total assets in debt
securities issued or guaranteed by real estate companies. We will not invest
more than 20% of our total assets in non-investment grade preferred stock or
debt securities (commonly known as 'junk bonds'). There can be no assurance that
we will achieve our investment objectives. See 'Principal Risks of the Fund.'

                                                   (continued on following page)

   INVESTING THE COMMON SHARES INVOLVES RISKS THAT ARE DESCRIBED IN THE
'PRINCIPAL RISKS OF THE FUND' BEGINNING ON PAGE 26 OF THIS PROSPECTUS.
                               -----------------


<Table>
<Caption>
                                                              PER SHARE    TOTAL
                                                              ---------    -----
<S>                                                           <C>         <C>
Public offering price.......................................    $15.00      $
Sales load(1)...............................................     $          $
Proceeds, before expenses, to the Fund......................   $            $
</Table>


(1) For a description of the manner in which the sales load may be reduced and
    of other compensation paid to the underwriters by the Fund and others, see
    'Underwriting.'

   The underwriters may also purchase up to an additional    Common Shares at
the public offering price, less the sales load, within 45 days of this
prospectus to cover over-allotments.

   Neither the Securities and Exchange Commission nor any State Securities
Commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.


   The Common Shares will be ready for delivery on or about February  , 2002.

                               -----------------

                              MERRILL LYNCH & CO.

A.G. EDWARDS & SONS, INC.                                  PRUDENTIAL SECURITIES
RAYMOND JAMES            CIBC WORLD MARKETS            DEUTSCHE BANC ALEX. BROWN
LEGG MASON WOOD WALKER     U.S. BANCORP PIPER JAFFRAY        WACHOVIA SECURITIES
     INCORPORATED
WELLS FARGO SECURITIES, LLC      ROBERT W. BAIRD & CO.     FAHNESTOCK & CO. INC.
JANNEY MONTGOMERY SCOTT LLC  MORGAN KEEGAN & COMPANY, INC.  QUICK & REILLY, INC.
                               -----------------
                The date of this prospectus is February  , 2002.







<PAGE>


    Leverage. The Fund intends to use leverage by issuing shares of preferred
stock representing approximately 33 1/3% of the Fund's capital after their
issuance or alternatively through borrowing. Through leveraging, the Fund will
seek to obtain a higher return for holders of common shares than if the Fund did
not use leverage. Leverage is a speculative technique and there are special
risks and costs associated with leveraging. There can be no assurance that a
leveraging strategy will be successful during any period in which it is
employed. See 'Use of Leverage -- Leverage Risks.'

    No Prior History.  Because the Fund is recently organized, its common shares
have no history of public trading. The shares of closed-end investment companies
frequently trade at a discount from their net asset value. This risk may be
greater for investors expecting to sell their shares in a relatively short
period after completion of the public offering. The Fund's Common Shares have
been approved for listing on the New York Stock Exchange upon notice of issuance
under the symbol 'RQI.'









<PAGE>
                               TABLE OF CONTENTS


<Table>
<Caption>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Prospectus Summary..........................................    4
Summary of Fund Expenses....................................   17
The Fund....................................................   19
Use of Proceeds.............................................   19
Investment Objectives and Policies..........................   19
Use of Leverage.............................................   22
Interest Rate Transactions..................................   24
Principal Risks of the Fund.................................   26
Additional Risk Considerations..............................   31
Management of the Fund......................................   32
Dividends and Distributions.................................   34
Closed-End Structure........................................   37
Possible Conversion to Open-End Status......................   37
Repurchase of Shares........................................   38
Taxation....................................................   39
Description of Shares.......................................   40
Certain Provisions of the Articles of Incorporation and
  By-Laws...................................................   41
Underwriting................................................   44
Direct Placements...........................................   46
Custodian, Transfer Agent, Dividend Disbursing Agent and
  Registrar.................................................   46
Reports to Shareholders.....................................   47
Validity of the Shares......................................   47
Table of Contents of the Statement of Additional
  Information...............................................   48
</Table>


                              -------------------

    YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT, AND THE UNDERWRITERS HAVE NOT,
AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION. IF ANYONE
PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON
IT. WE ARE NOT, AND THE UNDERWRITERS ARE NOT, MAKING AN OFFER TO SELL THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. YOU
SHOULD ASSUME THAT THE INFORMATION IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE
DATE OF THIS PROSPECTUS. OUR BUSINESS, FINANCIAL CONDITION AND PROSPECTS MAY
HAVE CHANGED SINCE THAT DATE.

    This prospectus sets forth concisely information about the Fund you should
know before investing. You should read the prospectus before deciding whether to
invest and retain it for future reference. A Statement of Additional
Information, dated February   , 2002 (the 'SAI'), containing additional
information about the Fund, has been filed with the Securities and Exchange
Commission and is incorporated by reference in its entirety into this
prospectus. You can review the table of contents of the SAI on page 48 of this
prospectus. You may request a free copy of the SAI by calling (800) 437-9912.
You may also obtain the SAI and other information regarding the Fund on the
Securities and Exchange Commission web site (http://www.sec.gov).

    Through and including        , 2002, all dealers effecting transactions in
these securities, whether or not participating in this offering, may be required
to deliver a prospectus. This is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.

                                       3









<PAGE>

                               PROSPECTUS SUMMARY

    This is only a summary. This summary may not contain all of the information
that you should consider before investing in our common shares. You should
review the more detailed information contained in this prospectus and in the
Statement of Additional Information, especially the information set forth under
the heading 'Principal Risks of the Fund.'

<Table>
<S>                                            <C>
THE FUND.....................................  Cohen & Steers Quality Income Realty Fund, Inc. (the
                                               'Fund') is a recently organized, non-diversified,
                                               closed-end management investment company.

THE OFFERING.................................  We are offering        shares of common stock
                                               ('Common Shares') through a group of underwriters led
                                               by Merrill Lynch & Co. You must purchase at least 100
                                               Common Shares ($1,500). The underwriters have been
                                               granted an option to purchase up to        additional
                                               Common Shares solely to cover over-allotments, if
                                               any. The initial public offering price is $15.00 per
                                               share. See 'Underwriting.' Cohen & Steers Capital
                                               Management, Inc. (the 'Investment Manager') will be
                                               responsible for (i) all organization expenses and
                                               (ii) offering costs (other than the sales load) that
                                               exceed $0.03 per share of the Fund's Common Shares.

INVESTMENT OBJECTIVES AND POLICIES...........  Our primary investment objective is high current
                                               income through investment in real estate securities.
                                               Capital appreciation is a secondary investment
                                               objective. Our investment objectives and certain
                                               investment policies are considered fundamental and
                                               may not be changed without shareholder approval. See
                                               'Investment Objectives and Policies.'

                                               Under normal market conditions, we will invest at
                                               least 90% of our total assets in common stocks,
                                               preferred stocks and other equity securities issued
                                               by real estate companies, such as 'real estate
                                               investment trusts' ('REITs'). At least 80% of our
                                               total assets will be invested in income producing
                                               equity securities issued by high quality REITs, and
                                               substantially all of the equity securities of real
                                               estate companies in which we intend to invest are
                                               traded on a national securities exchange or in the
                                               over-the-counter market. High quality REITs are
                                               companies that, in the opinion of the Investment
                                               Manager, offer excellent prospects for consistent,
                                               above-average revenue and earnings growth. To
                                               determine whether a company is of high quality, the
                                               Investment Manager generally looks to a strong record
                                               of earnings
</Table>

                                       4




<PAGE>

<Table>
<S>                                            <C>
                                               growth, as well as to a company's current ratio of
                                               debt to capital and the quality of its management.
                                               All of the REITs in which the Fund will invest will
                                               have a market capitalization greater than $100
                                               million. A real estate company generally derives at
                                               least 50% of its revenue from real estate or has at
                                               least 50% of its assets in real estate. A REIT is a
                                               company dedicated to owning, and usually operating,
                                               income producing real estate, or to financing real
                                               estate. REITs are generally not taxed on income
                                               distributed to shareholders provided they distribute
                                               to their shareholders substantially all of their
                                               income and otherwise comply with the requirements of
                                               the Internal Revenue Code of 1986, as amended (the
                                               'Code'). As a result, REITs generally pay relatively
                                               high dividends (as compared to other types of
                                               companies) and the Fund intends to use these REIT
                                               dividends in an effort to meet its objective of high
                                               current income. We may invest up to 10% of our total
                                               assets in debt securities issued or guaranteed by
                                               real estate companies. It is our current intention to
                                               invest approximately 70% of our total assets in
                                               common stocks of real estate companies and
                                               approximately 30% of our total assets in preferred
                                               stock of real estate companies, although the actual
                                               percentage of common and preferred stocks in our
                                               investment portfolio may vary over time. We will not
                                               invest more than 20% of our total assets in preferred
                                               stock or debt securities rated below investment grade
                                               (commonly known as 'junk bonds') or unrated
                                               securities of comparable quality. Preferred stock or
                                               debt securities will be considered to be investment
                                               grade if, at the time of investment, such security
                                               has a rating of 'BBB' or higher by Standard & Poor's
                                               Ratings Services ('S&P'), 'Baa' or higher by Moody's
                                               Investors Service, Inc. ('Moody's') or an equivalent
                                               rating by a nationally recognized statistical rating
                                               agency. The Investment Manager may also invest in
                                               preferred stock or debt securities which are unrated
                                               but which, in the opinion of the Investment Manager,
                                               are determined to be of equivalent quality. All of
                                               our investments will be in securities of U.S. issuers
                                               and we will generally not invest more than 10% of our
                                               total assets in the securities of one issuer. There
                                               can be no assurance that our investment objectives
                                               will be achieved. See 'Investment Objectives and
                                               Policies.'
</Table>


                                       5




<PAGE>

<Table>
<S>                                            <C>
USE OF LEVERAGE..............................  Subject to market conditions and the Fund's receipt
                                               of a AAA/aaa credit rating on the Fund Preferred
                                               Shares, approximately one to three months after
                                               completion of this offering, the Fund intends to
                                               offer shares of preferred stock ('Fund Preferred
                                               Shares') representing approximately 33 1/3% of the
                                               Fund's capital after their issuance. The issuance of
                                               Fund Preferred Shares will leverage your investment
                                               in Common Shares. As an alternative to Fund Preferred
                                               Shares, the Fund may leverage through borrowing. Any
                                               borrowing will have seniority over the Common Shares.

                                               The use of leverage creates an opportunity for
                                               increased Common Share net income, but also creates
                                               special risks for holders of Common Shares ('Common
                                               Shareholders'). The Fund Preferred Shares will pay
                                               dividends based on short-term rates, which will be
                                               reset frequently. Borrowings may be at a fixed or
                                               floating rate. The Fund may seek to protect itself
                                               from the risk of increasing dividends or interest
                                               expenses resulting from an increase in short-term
                                               interest rates by entering into a swap or cap
                                               transaction as to all or a portion of the Fund
                                               Preferred Shares or any borrowings. See 'Interest
                                               Rate Transactions.' As long as the rate of return,
                                               net of applicable Fund expenses, on the Fund's
                                               portfolio investments exceeds Fund Preferred Share
                                               dividend rates, as reset periodically, interest on
                                               any borrowings or the payment rate set by any
                                               interest rate swap, the investment of the proceeds of
                                               the Fund Preferred Shares or any borrowing will
                                               generate more income than will be needed to pay such
                                               dividends, interest rate or swap payment. If so, the
                                               excess will be available to pay higher dividends to
                                               Common Shareholders. If, however, the dividends or
                                               interest rate on any borrowings, as modified by any
                                               cap, or payment rate set by any interest rate swap,
                                               exceeds the rate of return on the Fund's investment
                                               portfolio, the return to Common Shareholders will be
                                               less than if the Fund had not leveraged.

                                               The holders of Fund Preferred Shares voting as a
                                               separate class will be entitled to elect two members
                                               of the Board of Directors of the Fund and in the
                                               event that the Fund fails to pay two full years of
                                               accrued dividends on the Fund Preferred Shares, the
                                               holders of the Fund Preferred Shares will be entitled
                                               to elect a
</Table>

                                       6




<PAGE>

<Table>
<S>                                            <C>
                                               majority of the members of the Board of Directors.
                                               See 'Use of Leverage' and 'Description of
                                               Shares -- Fund Preferred Shares.'

                                               There is no assurance that the Fund will utilize
                                               leverage or that, if utilized, the Fund's leveraging
                                               strategy will be successful. See 'Use of
                                               Leverage -- Leverage Risk.'

                                               Leverage Risk. Leverage creates two major types of
                                               risks for Common Shareholders:

                                                the likelihood of greater volatility of net asset
                                                value and market price of Common Shares because
                                                changes in the value of the Fund's portfolio
                                                (including changes in the value of any interest rate
                                                swap, if applicable) are borne entirely by the
                                                Common Shareholders; and

                                                the possibility either that Common Share income will
                                                fall if the dividend rate on the Fund Preferred
                                                Shares or the interest rate on any borrowings rises,
                                                or that Common Share income will fluctuate because
                                                the dividend rate on the Fund Preferred Shares or
                                                the interest rate on any borrowings varies.

                                               When the Fund is utilizing leverage, the fees paid to
                                               the Investment Manager for investment advisory and
                                               management services will be higher than if the Fund
                                               did not utilize leverage because the fees paid will
                                               be calculated based on the Fund's managed assets
                                               (which equals the net asset value of the Common
                                               Shares plus the liquidation preference on any Fund
                                               Preferred Shares plus the principal amount of any
                                               borrowings).

INTEREST RATE TRANSACTIONS...................  In order to reduce the interest rate risk inherent in
                                               our underlying investments and capital structure, we
                                               may enter into interest rate swap or cap
                                               transactions. The use of interest rate swaps and caps
                                               is a highly specialized activity that involves
                                               investment techniques and risks different from those
                                               associated with ordinary portfolio security
                                               transactions. In an interest rate swap, the Fund
                                               would agree to pay to the other party to the interest
                                               rate swap (which is known as the 'counterparty') a
                                               fixed rate payment in exchange for the counterparty
                                               agreeing to pay to the Fund a variable rate payment
                                               that is intended to approximate the Fund's variable
                                               rate payment obligation on the Fund Preferred Shares
                                               or any variable rate borrowing. The payment
                                               obligations would
</Table>

                                       7




<PAGE>

<Table>
<S>                                            <C>
                                               be based on the notional amount of the swap. In an
                                               interest rate cap, the Fund would pay a premium to
                                               the counterparty to the interest rate cap and, to the
                                               extent that a specified variable rate index exceeds a
                                               predetermined fixed rate, would receive from the
                                               counterparty payments of the difference based on the
                                               notional amount of such cap. Depending on the state
                                               of interest rates in general, our use of interest
                                               rate swaps or caps could enhance or decrease the net
                                               income of the Common Shares. To the extent there is a
                                               decline in interest rates, the value of the interest
                                               rate swap or cap could decline, and could result in a
                                               decline in the net asset value of the Fund Common
                                               Shares. In addition, if the counterparty to an
                                               interest rate swap or cap defaults, the Fund would be
                                               obligated to make the payments that it had intended
                                               to avoid. Depending on whether the Fund would be
                                               entitled to receive net payments from the
                                               counterparty on the swap or cap, which in turn would
                                               depend on the general state of short-term interest
                                               rates and the returns on the Fund's portfolio
                                               securities at that point in time, such default could
                                               negatively impact the performance of the Fund's
                                               Common Shares. In addition, at the time an interest
                                               rate swap or cap transaction reaches its scheduled
                                               termination date, there is a risk that the Fund will
                                               not be able to obtain a replacement transaction or
                                               that the terms of the replacement will not be as
                                               favorable as on the expiring transaction. If this
                                               occurs, it could have a negative impact on the
                                               performance of the Fund's Common Shares. If the Fund
                                               fails to maintain the required 200% asset coverage of
                                               the liquidation value of the outstanding Fund
                                               Preferred Shares or if the Fund loses its expected
                                               AAA/aaa rating on the Fund Preferred Shares or fails
                                               to maintain other covenants, the Fund may be required
                                               to redeem some or all of the Fund Preferred Shares.
                                               Similarly, the Fund could be required to prepay the
                                               principal amount of any borrowings. Such redemption
                                               or prepayment likely would result in the Fund seeking
                                               to terminate early all or a portion of any swap or
                                               cap transaction. Early termination of the swap could
                                               result in a termination payment by or to the Fund.
                                               Early termination of a cap could result in a
                                               termination payment to the Fund. We would not enter
                                               into interest rate swap or cap transactions having a
                                               notional amount that exceeded the outstanding amount
</Table>

                                       8




<PAGE>

<Table>
<S>                                            <C>
                                               of the Fund's leverage. See 'Use of Leverage' and
                                               'Interest Rate Transactions' for additional
                                               information.

PRINCIPAL RISKS OF THE FUND..................  We are a non-diversified, closed-end management
                                               investment company designed primarily as a long-term
                                               investment and not as a trading vehicle. The Fund is
                                               not intended to be a complete investment program and,
                                               due to the uncertainty inherent in all investments,
                                               there can be no assurance that we will achieve our
                                               investment objectives.

                                               No Operating History. As a recently organized entity,
                                               we have no operating history. See 'The Fund.'

                                               Investment Risk. An investment in the Fund is subject
                                               to investment risk, including the possible loss of
                                               the entire principal amount that you invest.

                                               Stock Market Risk. Your investment in Common Shares
                                               represents an indirect investment in the REIT shares
                                               and other real estate securities owned by the Fund,
                                               substantially all of which are traded on a national
                                               securities exchange or in the over-the-counter
                                               markets. The value of these securities, like other
                                               stock market investments, may move up or down,
                                               sometimes rapidly and unpredictably. Preferred stocks
                                               and debt securities are generally more sensitive to
                                               changes in interest rates than common stocks. When
                                               interest rates rise, the market value of preferred
                                               stocks and debt securities generally will fall. Your
                                               Common Shares at any point in time may be worth less
                                               than what you invested, even after taking into
                                               account the reinvestment of Fund dividends and
                                               distributions. The Fund may utilize leverage, which
                                               magnifies the stock market risk. See 'Use of
                                               Leverage -- Leverage Risk.'

                                               General Real Estate Risks. Since we concentrate our
                                               assets in the real estate industry, your investment
                                               in the Fund will be closely linked to the performance
                                               of the real estate markets. Property values may fall
                                               due to increasing vacancies or declining rents
                                               resulting from economic, legal, cultural or
                                               technological developments. REIT prices also may drop
                                               because of the failure of borrowers to pay their
                                               loans and poor management. Many REITs utilize
                                               leverage which increases investment risk and could
                                               adversely affect a REIT's operations and
</Table>

                                       9




<PAGE>

<Table>
<S>                                            <C>
                                               market value in periods of rising interest rates as
                                               well as risks normally associated with debt
                                               financing. In addition, there are risks associated
                                               with particular sectors of real estate investments.

                                               Retail Properties. Retail properties are affected by
                                               the overall health of the applicable economy and may
                                               be adversely affected by the growth of alternative
                                               forms of retailing, bankruptcy, departure or
                                               cessation of operations of a tenant, a shift in
                                               consumer demand due to demographic changes, spending
                                               patterns and lease terminations.

                                               Office Properties. Office properties are affected by
                                               the overall health of the economy, and other factors
                                               such as a downturn in the businesses operated by
                                               their tenants, obsolescence and non-competitiveness.

                                               Hotel Properties. The risks of hotel properties
                                               include, among other things, the necessity of a high
                                               level of continuing capital expenditures,
                                               competition, increases in operating costs which may
                                               not be offset by increases in revenues, dependence on
                                               business and commercial travelers and tourism,
                                               increases in fuel costs and other expenses of travel,
                                               and adverse effects of general and local economic
                                               conditions. Hotel properties tend to be more
                                               sensitive to adverse economic conditions and
                                               competition than many other commercial properties.

                                               Healthcare Properties. Healthcare properties and
                                               healthcare providers are affected by several
                                               significant factors including federal, state and
                                               local laws governing licenses, certification,
                                               adequacy of care, pharmaceutical distribution, rates,
                                               equipment, personnel and other factors regarding
                                               operations; continued availability of revenue from
                                               government reimbursement programs (primarily Medicaid
                                               and Medicare); and competition on a local and
                                               regional basis. The failure of any healthcare
                                               operator to comply with governmental laws and
                                               regulations may affect its ability to operate its
                                               facility or receive government reimbursements.

                                               Multifamily Properties. The value and successful
                                               operation of a multifamily property may be affected
                                               by a number of factors such as the location of the
                                               property, the ability of the management team, the
                                               level of
</Table>

                                       10




<PAGE>

<Table>
<S>                                            <C>
                                               mortgage rates, presence of competing properties,
                                               adverse economic conditions in the locale,
                                               oversupply, and rent control laws or other laws
                                               affecting such properties.

                                               Insurance. Certain of the portfolio companies may
                                               carry comprehensive liability, fire, flood,
                                               earthquake extended coverage and rental loss
                                               insurance with various policy specifications, limits
                                               and deductibles. Should any type of uninsured loss
                                               occur, the portfolio company could lose its
                                               investment in, and anticipated profits and cash flows
                                               from, a number of properties and as a result impact
                                               the Fund's investment performance.

                                               Credit Risk. REITs may be highly leveraged and
                                               financial covenants may affect the ability of REITs
                                               to operative effectively.

                                               Environmental Issues. In connection with the
                                               ownership (direct or indirect), operation, management
                                               and development of real properties that may contain
                                               hazardous or toxic substances, a portfolio company
                                               may be considered an owner, operator or responsible
                                               party of such properties and, therefore, may be
                                               potentially liable for removal or remediation costs,
                                               as well as certain other costs, including
                                               governmental fines and liabilities for injuries to
                                               persons and property. The existence of any such
                                               material environmental liability could have a
                                               material adverse effect on the results of operations
                                               and cash flow of any such portfolio company and, as a
                                               result, the amount available to make distributions on
                                               shares of the Fund could be reduced.

                                               Smaller Companies. Even the larger REITs in the
                                               industry tend to be small to medium-sized companies
                                               in relation to the equity markets as a whole. REIT
                                               shares, therefore, can be more volatile than, and
                                               perform differently from, larger company stocks.
                                               There may be less trading in a smaller company's
                                               stock, which means that buy and sell transactions in
                                               that stock could have a larger impact on the stock's
                                               price than is the case with larger company stocks.
                                               Further, smaller companies may have fewer business
                                               lines; changes in any one line of business,
                                               therefore, may have a greater impact on a smaller
                                               company's stock price than is the case for a larger
                                               company.
</Table>

                                       11




<PAGE>

<Table>
<S>                                            <C>
                                               As of December 31, 2001, the market capitalization of
                                               REITs ranged in size from approximately $1.5 million
                                               to approximately $12.5 billion.

                                               See 'Principal Risks of the Fund -- General Risks of
                                               Securities Linked to the Real Estate Market.'

                                               Lower-rated Securities Risk. Lower-rated preferred
                                               stock or debt securities, or equivalent unrated
                                               securities, which are commonly known as 'junk bonds,'
                                               generally involve greater volatility of price and
                                               risk of loss of income and principal, and may be more
                                               susceptible to real or perceived adverse economic and
                                               competitive industry conditions than higher grade
                                               securities. It is reasonable to expect that any
                                               adverse economic conditions could disrupt the market
                                               for lower-rated securities, have an adverse impact on
                                               the value of those securities, and adversely affect
                                               the ability of the issuers of those securities to
                                               repay principal and interest on those securities. See
                                               'Principal Risks of the Fund -- Risks of Investment
                                               in Lower-rated Securities.'

                                               Market Price Discount From Net Asset Value. Shares of
                                               closed-end investment companies frequently trade at a
                                               discount from their net asset value. This
                                               characteristic is a risk separate and distinct from
                                               the risk that net asset value could decrease as a
                                               result of investment activities and may be greater
                                               for investors expecting to sell their shares in a
                                               relatively short period following completion of this
                                               offering. We cannot predict whether the shares will
                                               trade at, above or below net asset value. See
                                               'Principal Risks of the Fund -- Market Price Discount
                                               From Net Asset Value.'

ADDITIONAL RISK CONSIDERATIONS...............  Portfolio Turnover. We may engage in portfolio
                                               trading when considered appropriate. There are no
                                               limits on the rate of portfolio turnover. A higher
                                               turnover rate results in correspondingly greater
                                               brokerage commissions and other transactional
                                               expenses which are borne by the Fund. See 'Additional
                                               Risk Considerations -- Portfolio Turnover.'

                                               Inflation Risk. Inflation risk is the risk that the
                                               value of assets or income from investments will be
                                               worth less than in the future as inflation decreases
                                               the value of money. As inflation increases, the real
                                               value of the
</Table>

                                       12




<PAGE>

<Table>
<S>                                            <C>
                                               Common Shares and distributions can decline and the
                                               dividend payments on the Fund Preferred Shares, if
                                               any, or interest payments on any borrowings may
                                               increase. See 'Additional Risk Considerations --
                                               Inflation Risk.'

                                               Non-Diversified Status. Because we, as a
                                               non-diversified investment company, may invest in a
                                               smaller number of individual issuers than a
                                               diversified investment company, an investment in the
                                               Fund presents greater risk to you than an investment
                                               in a diversified company. We intend to comply with
                                               the diversification requirements of the Code
                                               applicable to regulated investment companies. See
                                               'Additional Risk Considerations -- Non-Diversified
                                               Status.' See also 'Taxation' in the SAI.

                                               Anti-Takeover Provisions. Certain provisions of our
                                               Articles of Incorporation and By-Laws could have the
                                               effect of limiting the ability of other entities or
                                               persons to acquire control of the Fund or to modify
                                               our structure. The provisions may have the effect of
                                               depriving you of an opportunity to sell your shares
                                               at a premium over prevailing market prices and may
                                               have the effect of inhibiting conversion of the Fund
                                               to an open-end investment company. See 'Certain
                                               Provisions of the Articles of Incorporation and
                                               By-Laws' and 'Additional Risk Considerations --
                                               Anti-Takeover Provisions.'

                                               Recent Developments. As a result of the terrorist
                                               attacks on the World Trade Center and the Pentagon on
                                               September 11, 2001, some of the U.S. securities
                                               markets were closed for a four-day period. These
                                               terrorist attacks and related events have led to
                                               increased short-term market volatility and may have
                                               long-term effects on U.S. and world economies and
                                               markets. A similar disruption of the financial
                                               markets could impact interest rates, auctions,
                                               secondary trading, ratings, credit risk, inflation
                                               and other factors relating to the Common Shares and
                                               the Fund Preferred Shares.

                                               Given the risks described above, an investment in the
                                               shares may not be appropriate for all investors. You
                                               should carefully consider your ability to assume
                                               these risks before making an investment in the Fund.

INVESTMENT MANAGER...........................  Cohen & Steers Capital Management, Inc. is the
                                               investment manager pursuant to an Investment
</Table>

                                       13




<PAGE>

<Table>
<S>                                            <C>
                                               Management Agreement. The Investment Manager, which
                                               was formed in 1986, is a leading firm specializing in
                                               the management of real estate securities portfolios
                                               and as of December 31, 2001 had approximately $5.7
                                               billion in assets under management. Its clients
                                               include pension plans, endowment funds and mutual
                                               funds, including some of the largest open-end and
                                               closed-end real estate funds. The Investment
                                               Manager's client accounts are invested principally in
                                               real estate securities and the Investment Manager
                                               focuses exclusively on real estate. The Investment
                                               Manager also will have responsibility for providing
                                               administrative services, and assisting the Fund with
                                               operational needs pursuant to an Administration
                                               Agreement. In accordance with the terms of the
                                               Administration Agreement, the Fund has entered into
                                               an agreement with State Street Bank and Trust Company
                                               ('State Street Bank') to perform certain
                                               administrative functions subject to the supervision
                                               of the Investment Manager (the 'Sub-Administration
                                               Agreement'). See 'Management of the Fund --
                                               Administration and Sub-Administration Agreement.'

FEES AND EXPENSES............................  The Fund will pay the Investment Manager a monthly
                                               fee computed at the annual rate of 0.85% of average
                                               daily managed assets (i.e., the net asset value of
                                               Common Shares plus the liquidation preference of any
                                               Fund Preferred Shares and the principal amount of any
                                               borrowings used for leverage). The fees payable to
                                               the Investment Manager are higher than the management
                                               fees paid by many investment companies, but are
                                               comparable to fees paid by many registered management
                                               investment companies that invest primarily in real
                                               estate securities. The Investment Manager has
                                               contractually agreed to waive a portion of its
                                               investment management fees in the amount of 0.32% of
                                               average daily total managed assets for the first 5
                                               fiscal years of the Fund's operations (through
                                               December 31, 2006), and in declining amounts for each
                                               of the five years thereafter (through December 31,
                                               2011). Based on information compiled by the
                                               Investment Manager from various sources, including
                                               Morningstar, Inc., Lipper Inc. and Securities and
                                               Exchange Commission filings, for most of this 10 year
                                               period, the Investment Manager expects the Fund's
                                               fees and expenses to be lower than most comparable
                                               funds.
</Table>

                                       14




<PAGE>

<Table>
<S>                                            <C>
                                               See 'Management of the Fund -- Investment Manager.'
                                               When the Fund is utilizing leverage, the fees paid to
                                               the Investment Manager for investment advisory and
                                               management services will be higher than if the Fund
                                               did not utilize leverage because the fees paid will
                                               be calculated based on the Fund's managed assets,
                                               which include the liquidation preference of preferred
                                               stock, and the principal amount of any outstanding
                                               borrowings used for leverage. The Fund's investment
                                               management fees and other expenses are paid only by
                                               the Common Shareholders, and not by holders of the
                                               Fund Preferred Shares. See 'Use of Leverage.'

LISTING AND SYMBOL...........................  The Fund's Common Shares have been approved for
                                               listing on the New York Stock Exchange upon notice of
                                               issuance under the symbol 'RQI.'

DIVIDENDS AND DISTRIBUTIONS..................  Commencing with the Fund's first dividend, the Fund
                                               intends to make regular monthly cash distributions to
                                               Common Shareholders at a level rate based on the
                                               projected performance of the Fund, which rate may be
                                               adjusted from time to time. The Fund's ability to
                                               maintain a level dividend rate will depend on a
                                               number of factors, including the stability of income
                                               received from its investments and dividends payable
                                               on the Fund Preferred Shares or interest payments on
                                               borrowings. As portfolio and market conditions
                                               change, the rate of dividends on the Common Shares
                                               and the Fund's dividend policy will likely change.
                                               Over time, the Fund will distribute all of its net
                                               investment income (after it pays accrued dividends on
                                               any outstanding Fund Preferred Shares and interest on
                                               any borrowings). In addition, at least annually, the
                                               Fund intends to distribute net capital gain and
                                               taxable ordinary income, if any, to you so long as
                                               the net capital gain and taxable ordinary income are
                                               not necessary to pay accrued dividends on, or redeem
                                               or liquidate any Fund Preferred Shares, or pay
                                               interest on any borrowings. Your initial distribution
                                               is expected to be declared approximately 45 days, and
                                               paid approximately 60 to 75 days, from the completion
                                               of this offering, depending on market conditions.
                                               Following the commencement of this offering, the Fund
                                               intends to file an exemptive application with the
                                               Securities and Exchange Commission seeking an order
                                               under the Investment Company Act of 1940 (the '1940
</Table>

                                       15




<PAGE>

<Table>
<S>                                            <C>
                                               Act') facilitating the implementation of a dividend
                                               policy calling for monthly distributions of a fixed
                                               percentage of its net asset value ('Managed Dividend
                                               Policy'). If, and when, the Fund receives the
                                               requested relief, the Fund may, subject to the
                                               determination of its Board of Directors, implement a
                                               Managed Dividend Policy. See 'Dividends and
                                               Distributions.'

DIVIDEND REINVESTMENT PLAN...................  Shareholders will receive their dividends in
                                               additional Common Shares purchased in the open market
                                               or issued by the Fund through the Fund's Dividend
                                               Reinvestment Plan, unless they elect to have their
                                               dividends and other distributions from the Fund paid
                                               in cash. Shareholders whose Common Shares are held in
                                               the name of a broker or nominee should contact the
                                               broker or nominee to confirm that the dividend
                                               reinvestment service is available. See 'Dividends and
                                               Distributions' and 'Taxation.'

CUSTODIAN, TRANSFER AGENT, DIVIDEND
  DISBURSING AGENT AND REGISTRAR.............  State Street Bank and Trust Company will act as
                                               custodian, and EquiServe Trust Company, NA will act
                                               as transfer agent, dividend disbursing agent and
                                               registrar for the Fund. See 'Custodian, Transfer
                                               Agent, Dividend Disbursing Agent and Registrar.'
</Table>

                                       16









<PAGE>

                            SUMMARY OF FUND EXPENSES

    The purpose of the following table is to help you understand the fees and
expenses that you, as a Common Shareholder, would bear directly or indirectly.
The expenses shown in the table are based on estimated amounts for the Fund's
first year of operations, unless otherwise indicated, and assume that the Fund
issues approximately 17,000,000 Common Shares. If the Fund issues fewer Common
Shares, all other things being equal, these expenses would increase. See
'Management of the Fund.' The expenses in the table also assume the issuance of
Fund Preferred Shares in an amount equal to 33 1/3% of the Fund's total capital
(after issuance), and the table shows Fund expenses both as a percentage of net
assets attributable to Common Shares and, in footnote 3, as a percentage of
managed assets.


<Table>
<S>                                                           <C>
SHAREHOLDER TRANSACTION EXPENSES
    Sales Load Paid by You (as a percentage of offering
      price) (1)............................................             %
    Dividend Reinvestment Plan Fees.........................          None
</Table>


<Table>
<Caption>
                                                               PERCENTAGE OF NET
                                                              ASSETS ATTRIBUTABLE
                                                              TO COMMON SHARES(3)
                                                              -------------------
<S>                                                           <C>
ANNUAL EXPENSES
    Investment Management Fees (2)..........................         1.28%
    Other Expenses (2)......................................         0.33%
    Interest Payments on Borrowed Funds (2).................          None
                                                                    ------
    Total Annual Fund Operating Expenses (2) (4)............         1.61%
    Fee Waiver and Expense Reimbursement (Years 1-5)........        (0.48%)(4)
                                                                    ------
    Total Net Annual Expenses (2)...........................         1.13% (4)
                                                                    ------
                                                                    ------
</Table>

- ---------


(1) The Fund will use the proceeds of this offering to purchase, immediately
    after the closing of the offering, REIT common and preferred stocks issued
    in transactions for which Merrill Lynch, Pierce, Fenner & Smith Incorporated
    ('Merrill Lynch') has served as placement agent for the issuer ('Direct
    Placements'). Of the placement agent fees payable to Merrill Lynch by the
    issuers in connection with these Direct Placements, $    , (representing  %
    of the total aggregate offering price of the Common Shares) has been applied
    as a credit against sales loads that would otherwise be paid by investors in
    the Fund thereby reducing the actual sales load paid by Fund investors. All
    placement agent fees for Direct Placements paid to Merrill Lynch which
    exceed the credit to Fund investors as described above will be retained by
    Merrill Lynch in its capacity as placement agent for such issuers. See
    'Underwriting' for a more complete description of this sales load credit.



(2) In the event the Fund, as an alternative to issuing Fund Preferred Shares,
    utilizes leverage by borrowing in an amount equal to approximately 33 1/3%
    of the Fund's total assets (including the amount obtained from leverage), it
    is estimated that, as a percentage of net assets attributable to Common
    Shares, the Investment Management Fee would be 1.28%, Other Expenses would
    be 0.18%, Interest Payments on Borrowed Funds (assuming an interest rate of
    5.60%, which interest rate is subject to change based on prevailing market
    conditions) would be 2.80%, Total Annual Fund Operating Expenses would be
    4.26% and Total Net Annual Expenses would be 3.78%. Based on the total net
    annual expenses and in accordance with the example below, the expenses for
    years 1, 3, 5 and 10 would be $ , $  , $  and $  , respectively.


                                              (footnotes continued on next page)

                                       17




<PAGE>
(footnotes continued from previous page)

(3) Stated as percentages of the Fund's managed assets attributable to both
    Common and Preferred Shares, the Fund's expenses would be estimated to be as
    follows:

<Table>
<Caption>
                                                               PERCENTAGE OF
                                                              MANAGED ASSETS
                                                              --------------
<S>                                                           <C>
ANNUAL EXPENSES
   Investment Management Fees...............................        0.85%
   Other Expenses...........................................        0.22%
   Interest Payments on Borrowed Funds......................         None
                                                                  -------
   Total Annual Fund Operating Expenses (4).................        1.07%
   Fee Waiver and Expense Reimbursement (Years 1-5).........       (0.32%)(4)
                                                                  -------
   Total Net Annual Expenses (2)............................        0.75% (4)
                                                                  -------
                                                                  -------
</Table>

(4) Cohen & Steers Capital Management, Inc., the Investment Manager, has
    contractually agreed to waive a portion of its fees and expenses in the
    amount of 0.32% of average daily managed assets (which includes the
    liquidation preference of any Fund Preferred Shares and the principal amount
    of any borrowings used for leverage) for the first 5 fiscal years of the
    Fund's operations, 0.26% of average daily managed assets in year 6, 0.20% of
    average daily managed assets in year 7, 0.14% of average daily managed
    assets in year 8, 0.08% of average daily managed assets in year 9 and 0.02%
    of average daily managed assets in year 10. The Investment Manager, has also
    agreed to pay all organizational expenses and offering costs (other than the
    sales load) that exceed $0.03 per Common Share (0.20% of the offering
    price).


    The following example illustrates the expenses (including the sales load of
$    ) that you would pay on a $1,000 investment in Common Shares, assuming (1)
total net annual expenses of 1.13% of net assets attributable to Common Shares
in years 1 through 5, increasing to 1.58% in year 10 and (2) a 5% annual return:



<Table>
<Caption>
                                                              1 YEAR   3 YEARS   5 YEARS   10 YEARS
                                                              ------   -------   -------   --------
<S>                                                           <C>      <C>       <C>       <C>
    Total Expenses Incurred.................................   $         $        $          $
</Table>



    THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE HIGHER OR LOWER. The example assumes that the estimated
'Other Expenses' set forth in the Annual Expenses table are accurate, that fees
and expenses increase as described in footnote 2 above and that all dividends
and distributions are reinvested at net asset value. Actual expenses may be
greater or less than those assumed. Moreover, the Fund's actual rate of return
may be greater or less than the hypothetical 5% return shown in the example. The
expenses you would pay, based on the Fund's expenses as stated as percentages of
the Fund's managed assets (assuming the issuance of Fund Preferred Shares in an
amount equal to 33 1/3% of the Fund's capital after their issuance) and
otherwise on the assumptions in the example would be: 1 Year $  ; 3 Years $  ;
5 Years $  ; and 10 Years $   .


                                       18









<PAGE>
                                    THE FUND

    Cohen & Steers Quality Income Realty Fund, Inc. is a recently organized,
non-diversified, closed-end management investment company. We were organized as
a Maryland corporation on August 22, 2001 and are registered as an investment
company under the Investment Company Act of 1940 (the '1940 Act'). As a
recently-organized entity, we have no operating history. Our principal office is
located at 757 Third Avenue, New York, New York 10017, and our telephone number
is (212) 832-3232.

                                USE OF PROCEEDS

    We estimate the net proceeds of this offering, after deducting (i) all
organization expenses and (ii) offering costs (other than the sales load) that
do not exceed $0.03 per share of Common Shares, to be $    , or $    assuming
exercise of the over-allotment option in full. The net proceeds will be invested
in accordance with the policies set forth under 'Investment Objectives and
Policies.' A portion of the organization and offering expenses of the Fund has
been advanced by the Investment Manager and will be repaid by the Fund upon
closing of this offering. The Investment Manager will incur and be responsible
for (i) all of the Fund's organization expenses and (ii) offering expenses
(other than the sales load) that exceed $0.03 per share of the Fund's Common
Shares.


    Approximately   % of the net proceeds of the offering (excluding the
over-allotment option) is expected to be used to complete the purchase of Direct
Placements immediately after the closing of the offering. We estimate that the
remaining net proceeds of this offering will be fully invested in accordance
with our investment objectives and policies within three to six months of the
initial public offering. Pending such investment, those proceeds may be invested
in U.S. Government securities or high-quality, short-term money market
instruments. See 'Investment Objectives and Policies.'


                       INVESTMENT OBJECTIVES AND POLICIES

GENERAL

    Our primary investment objective is high current income through investment
in real estate securities. Capital appreciation is a secondary investment
objective. The Fund's investment objectives and certain other policies are
fundamental and may not be changed without the approval of shareholders. Unless
otherwise indicated, the Fund's investment policies are not fundamental and may
be changed by the Board of Directors without the approval of shareholders,
although we have no current intention of doing so. The Fund has a policy of
concentrating its investments in the U.S. real estate industry and not in any
other industry. This investment policy is fundamental and cannot be changed
without the approval of a majority of the Fund's outstanding voting securities,
as defined in the 1940 Act, as amended. Under normal market conditions, we will
invest at least 90% of our total assets in common stocks, preferred stocks and
other equity securities issued by real estate companies, such as 'real estate
investment trusts' ('REITs'). At least 80% of our total assets will be invested
in income producing equity securities issued by high quality REITs, and
substantially all of the equity securities of real estate companies in which we
intend to invest are traded on a national securities exchange or in the
over-the-counter market. High quality REITs are companies that, in the opinion
of the Investment Manager, offer excellent prospects for consistent,
above-average revenue and earnings growth. To determine whether a

                                       19




<PAGE>
company is of high quality, the Investment Manager generally looks to a strong
record of earnings growth, as well as to a company's current ratio of debt to
capital and the quality of its management. All of the REITs in which the Fund
will invest will have a market capitalization greater than $100 million. We may
invest up to 10% of our total assets in debt securities issued or guaranteed by
real estate companies. We will not invest more than 20% of our total assets in
preferred stock or debt securities rated below investment grade (commonly known
as 'junk bonds') or unrated securities of comparable quality. Preferred stock or
debt securities will be considered to be investment grade if, at the time of
investment, such security has a rating of 'BBB' or higher by Standard & Poor's
Ratings Services ('S&P'), 'Baa' or higher by Moody's Investors Service, Inc.
('Moody's') or an equivalent rating by a nationally recognized statistical
rating agency. The Investment Manager may also invest in preferred stock or debt
securities which are unrated but which, in the opinion of the Investment
Manager, are determined to be of equivalent quality. See Appendix A in the SAI
for a description of bond ratings. These two policies are fundamental and cannot
be changed without the approval of a majority of the Fund's voting securities,
as defined in the 1940 Act, as amended. We will invest only in securities of
U.S. issuers and generally will not invest more than 10% of our total assets in
the securities of one issuer.

    We will not enter into short sales or invest in derivatives, except as
described in this Prospectus in connection with the interest rate swap or
interest rate cap transactions. See 'Use of Leverage' and 'Interest Rate
Transactions.' There can be no assurance that our investment objectives will be
achieved.

INVESTMENT STRATEGIES

    In making investment decisions on behalf of the Fund, the Investment Manager
relies on a fundamental analysis of each company. The Investment Manager reviews
each company's potential for success in light of the company's current financial
condition, its industry and sector position, and economic and market conditions.
The Investment Manager evaluates a number of factors, including growth
potential, earnings estimates and the quality of management.

PORTFOLIO COMPOSITION

    Our portfolio will be composed principally of the following investments. A
more detailed description of our investment policies and restrictions and more
detailed information about our portfolio investments are contained in the SAI.

    Real Estate Companies. For purposes of our investment policies, a real
estate company is one that:

     derives at least 50% of its revenues from the ownership, construction,
     financing, management or sale of commercial, industrial, or residential
     real estate; or

     has at least 50% of its assets in such real estate.

    Under normal market conditions, we will invest at least 90% of our total
assets in the equity securities of real estate companies. These equity
securities can consist of:

     common stocks (including REIT shares);

     preferred stocks;

     rights or warrants to purchase common and preferred stocks; and

                                       20




<PAGE>
     securities convertible into common and preferred stocks where the
     conversion feature represents, in the Investment Manager's view, a
     significant element of the securities' value.

    Real Estate Investment Trusts. We will invest at least 80% of our total
assets in income producing equity securities of REITs. A REIT is a company
dedicated to owning, and usually operating, income producing real estate, or to
financing real estate. REITs pool investors' funds for investment primarily in
income producing real estate or real estate-related loans or interests. A REIT
is not taxed on income distributed to shareholders if, among other things, it
distributes to its shareholders substantially all of its taxable income (other
than net capital gains) for each taxable year. As a result, REITs tend to pay
relatively higher dividends than other types of companies and we intend to use
these REIT dividends in an effort to meet the current income goal of our
investment objectives.

    REITs can generally be classified as Equity REITs, Mortgage REITs and Hybrid
REITs. Equity REITs, which invest the majority of their assets directly in real
property, derive their income primarily from rents. Equity REITs can also
realize capital gains by selling properties that have appreciated in value.
Mortgage REITs, which invest the majority of their assets in real estate
mortgages, derive their income primarily from interest payments. Hybrid REITs
combine the characteristics of both Equity REITs and Mortgage REITs. We do not
currently intend to invest more than 10% of our total assets in Mortgage REITs
or Hybrid REITs.

    Preferred Stocks. Preferred stocks pay fixed or floating dividends to
investors, and have a 'preference' over common stock in the payment of dividends
and the liquidation of a company's assets. This means that a company must pay
dividends on preferred stock before paying any dividends on its common stock.
Preferred stockholders usually have no right to vote for corporate directors or
on other matters. Under current market conditions, the Investment Manager
expects to invest approximately 70% of our total assets in common shares of real
estate companies and approximately 30% in preferred shares of REITs. The actual
percentage of common and preferred stocks in our investment portfolio may vary
over time based on the Investment Manager's assessment of market conditions.

    Debt Securities. We may invest a maximum of 10% of our total assets in
investment grade and non-investment grade debt securities issued or guaranteed
by real estate companies.

    Lower-rated Securities. We will not invest more than 20% of our total assets
in preferred stock and debt securities rated below investment grade (commonly
known as 'junk bonds') and equivalent unrated securities of comparable quality.
Securities rated non-investment grade (lower than Baa by Moody's or lower than
BBB by S&P), are sometimes referred to as 'high yield' or 'junk' bonds. We may
only invest in high yield securities that are rated CCC or higher by S&P, or
rated Caa or higher by Moody's, or unrated securities determined by the
Investment Manager to be of comparable quality. The issuers of these securities
have a currently identifiable vulnerability to default and such issues may be in
default or there may be present elements of danger with respect to principal or
interest. We will not invest in securities which are in default at the time of
purchase. For a description of bond ratings, see Appendix A of the SAI.

    Defensive Position. When the Investment Manager believes that market or
general economic conditions justify a temporary defensive position, we may
deviate from our investment objectives and invest all or any portion of our
assets in investment grade debt securities, without regard to whether the issuer
is a real estate company. When and to the extent we assume a temporary defensive
position, we may not pursue or achieve our investment objectives.

                                       21




<PAGE>
OTHER INVESTMENTS

    The Fund's cash reserves, held to provide sufficient flexibility to take
advantage of new opportunities for investments and for other cash needs, will be
invested in money market instruments. Money market instruments in which we may
invest our cash reserves will generally consist of obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and such
obligations which are subject to repurchase agreements and commercial paper. See
'Investment Objectives and Policies' in the SAI.

                                USE OF LEVERAGE

    Subject to market conditions and the Fund's receipt of AAA/aaa credit rating
on the Fund Preferred Shares, approximately one to three months after the
completion of the offering of the Common Shares, the Fund intends to offer Fund
Preferred Shares representing approximately 33 1/3% of the Fund's capital
immediately after their issuance. The issuance of Fund Preferred Shares will
leverage the Common Shares. As an alternative to the Fund Preferred Shares, the
Fund may leverage through borrowings. Any borrowings will have seniority over
the Common Shares.

    Under the 1940 Act, the Fund is not permitted to issue preferred shares
unless immediately after the issuance the value of the Fund's total assets is at
least 200% of the liquidation value of the outstanding preferred shares (i.e.,
such liquidation value may not exceed 50% of the Fund's total assets less
liabilities other than borrowing). In addition, the Fund is not permitted to
declare any cash dividend or other distribution on its Common Shares unless, at
the time of such declaration, the value of the Fund's total assets less
liabilities other than borrowing is at least 200% of such liquidation value. If
Fund Preferred Shares are issued, the Fund intends, to the extent possible, to
purchase or redeem Fund Preferred Shares from time to time to the extent
necessary in order to maintain coverage of any Fund Preferred Shares of at least
200%. If the Fund has Fund Preferred Shares outstanding, two of the Fund's
Directors will be elected by the holders of Fund Preferred Shares, voting
separately as a class. The remaining Directors of the Fund will be elected by
holders of Common Shares and Fund Preferred Shares voting together as a single
class. In the event the Fund failed to pay dividends on Fund Preferred Shares
for two years, Fund Preferred Shareholders would be entitled to elect a majority
of the Directors of the Fund. The failure to pay dividends or make distributions
could result in the Fund ceasing to qualify as a regulated investment company
under the Code, which could have a material adverse effect on the value of the
Common Shares. See 'Description of Shares -- Fund Preferred Shares.'

    Under the 1940 Act, the Fund generally is not permitted to borrow unless
immediately after the borrowing the value of the Fund's total assets less
liabilities other than the borrowing is at least 300% of the principal amount of
such borrowing (i.e., such principal amount may not exceed 33 1/3% of the Fund's
total assets). In addition, the Fund is not permitted to declare any cash
dividend or other distribution on its Common Shares unless, at the time of such
declaration, the value of the Fund's total assets, less liabilities other than
the borrowings, is at least 300% of such principal amount. If the Fund borrows,
the Fund intends, to the extent possible, to prepay all or a portion of the
principal amount of the borrowing to the extent necessary in order to maintain
the required asset coverage. Failure to maintain certain asset coverage
requirements could result in an event of default and entitle the debt holders to
elect a majority of the board of directors.

                                       22




<PAGE>
    The Fund may be subject to certain restrictions imposed by either guidelines
of one or more rating agencies which may issue ratings for Fund Preferred Shares
or, if the Fund borrows from a lender, by the lender. These guidelines may
impose asset coverage or portfolio composition requirements that are more
stringent than those imposed on the Fund by the 1940 Act. It is not anticipated
that these covenants or guidelines will impede the Investment Manager from
managing the Fund's portfolio in accordance with the Fund's investment
objectives and policies. In addition to other considerations, to the extent that
the Fund believes that the covenants and guidelines required by the rating
agencies would impede its ability to meet its investment objectives, or if the
Fund is unable to obtain the rating on the Fund Preferred Shares (expected to be
AAA/aaa), the Fund will not issue the Fund Preferred Shares.


    Assuming that the Fund Preferred Shares or borrowings will represent
approximately 33 1/3% of the Fund's capital and pay dividends or interest or
payment rate set by an interest rate transaction at an annual average rate of
5.60%, the income generated by the Fund's portfolio (net of estimated expenses)
must exceed 1.87% in order to cover such dividend payments or interest or
payment rates and other expenses specifically related to the Fund Preferred
Shares or borrowings. Of course, these numbers are merely estimates, used for
illustration. Actual Fund Preferred Share dividend rates, interest, or payment
rates may vary frequently and may be significantly higher or lower than the rate
estimated above.


    The following table is furnished in response to requirements of the
Securities and Exchange Commission. It is designed to illustrate the effect of
leverage on Common Share total return, assuming investment portfolio total
returns (comprised of income and changes in the value of investments held in the
Fund's portfolio) of  - 10%,  - 5%, 0%, 5% and 10%. These assumed investment
portfolio returns are hypothetical figures and are not necessarily indicative of
the investment portfolio returns expected to be experienced by the Fund. The
table further reflects the issuance of Fund Preferred Shares or borrowings
representing 33 1/3% of the Fund's total capital, a 8.25% yield on the Fund's
investment portfolio, net of expenses, and the Fund's currently projected annual
Fund Preferred Share dividend rate, borrowing interest rate or payment rate set
by an interest rate transaction of 5.60%. See 'Use of Leverage -- Leverage
Risks.'

<Table>
<S>                                       <C>        <C>        <C>     <C>       <C>
Assumed Portfolio Total Return..........     (10)%       (5)%       0 %     5%       10%
Common Share Total Return...............  (17.80)%   (10.30)%   (2.80)%  4.70%    12.20%
</Table>

    Common Share total return is composed of two elements -- the Common Share
dividends paid by the Fund (the amount of which is largely determined by the net
investment income of the Fund after paying dividends on Fund Preferred Shares or
interest on borrowings) and gains or losses on the value of the securities the
Fund owns. As required by Securities and Exchange Commission rules, the table
assumes that the Fund is more likely to suffer capital losses than to enjoy
capital appreciation.

    During the time in which the Fund is utilizing leverage, the fees paid to
the Investment Manager for investment advisory and management services will be
higher than if the Fund did not utilize leverage because the fees paid will be
calculated based on the Fund's managed assets. Only the Fund's Common
Shareholders bear the cost of the Fund's fees and expenses.

    The Fund may also borrow money as a temporary measure for extraordinary or
emergency purposes, including the payment of dividends and the settlement of
securities transactions which otherwise might require untimely dispositions of
Fund securities.

                                       23




<PAGE>
LEVERAGE RISKS

    Utilization of leverage is a speculative investment technique and involves
certain risks to the holders of Common Shares. These include the possibility of
higher volatility of the net asset value of the Common Shares and potentially
more volatility in the market value of the Common Shares. So long as the Fund is
able to realize a higher net return on its investment portfolio than the then
current cost of any leverage together with other related expenses, the effect of
the leverage will be to cause holders of Common Shares to realize higher current
net investment income than if the Fund were not so leveraged. On the other hand,
to the extent that the then current cost of any leverage, together with other
related expenses, approaches the net return on the Fund's investment portfolio,
the benefit of leverage to holders of Common Shares will be reduced, and if the
then current cost of any leverage were to exceed the net return on the Fund's
portfolio, the Fund's leveraged capital structure would result in a lower rate
of return to Common Shareholders than if the Fund were not so leveraged.

    Any decline in the net asset value of the Fund's investments will be borne
entirely by Common Shareholders. Therefore, if the market value of the Fund's
portfolio declines, the leverage will result in a greater decrease in net asset
value to Common Shareholders than if the Fund were not leveraged. Such greater
net asset value decrease will also tend to cause a greater decline in the market
price for the Common Shares. To the extent that the Fund is required or elects
to redeem any Fund Preferred Shares or prepay any borrowings, the Fund may need
to liquidate investments to fund such redemptions or prepayments. Liquidation at
times of adverse economic conditions may result in capital loss and reduce
returns to Common Shareholders.

    In addition, such redemption or prepayment would likely result in the Fund
seeking to terminate early all or a portion of any swap or cap transaction.
Early termination of the swap could result in a termination payment by or to the
Fund. Early termination of a cap could result in a termination payment to the
Fund. See 'Interest Rate Transactions.'

    Unless and until Fund Preferred Shares are issued or borrowings for leverage
are made, the Common Shares will not be leveraged and the disclosure regarding
these strategies will not apply.

                           INTEREST RATE TRANSACTIONS

    In order to reduce the interest rate risk inherent in our underlying
investments and capital structure, we may enter into interest rate swap or cap
transactions. Interest rate swaps involve the Fund's agreement with the swap
counterparty to pay a fixed rate payment in exchange for the counterparty paying
the Fund a variable rate payment that is intended to approximate the Fund's
variable rate payment obligation on the Fund Preferred Shares or any variable
rate borrowing. The payment obligation would be based on the notional amount of
the swap. We may use an interest rate cap, which would require us to pay a
premium to the cap counterparty and would entitle us, to the extent that a
specified variable rate index exceeds a predetermined fixed rate, to receive
from the counterparty payment of the difference based on the notional amount. We
would use interest rate swaps or caps only with the intent to reduce or
eliminate the risk that an increase in short-term interest rates could have on
the performance of the Fund's Common Shares as a result of leverage.

    The use of interest rate swaps and caps is a highly specialized activity
that involves investment techniques and risks different from those associated
with ordinary portfolio security transactions. Depending on the state of
interest rates in general, our use of interest rate swaps or caps could

                                       24




<PAGE>
enhance or harm the overall performance of the Fund's Common Shares. To the
extent there is a decline in interest rates, the value of the interest rate swap
or cap could decline, and could result in a decline in the net asset value of
the Common Shares. In addition, if short-term interest rates are lower than our
rate of payment on the interest rate swap, this will reduce the performance of
the Fund's Common Shares. If, on the other hand, short-term interest rates are
higher than our rate of payment on the interest rate swap, this will enhance the
performance of the Fund's Common Shares. Buying interest rate caps could enhance
the performance of the Fund's Common Shares by providing a maximum leverage
expense. Buying interest rate caps could also decrease the net income of the
Fund's Common Shares in the event that the premium paid by the Fund to the
counterparty exceeds the additional amount the Fund would have been required to
pay had it not entered into the cap agreement. The Fund has no current intention
of selling an interest rate swap or cap. We would not enter into interest rate
swap or cap transactions in an aggregate notional amount that exceeds the
outstanding amount of the Fund's leverage.

    Interest rate swaps and caps do not involve the delivery of securities or
other underlying assets or principal. Accordingly, the risk of loss with respect
to interest rate swaps is limited to the net amount of interest payments that
the Fund is contractually obligated to make. If the counter party defaults, the
Fund would not be able to use the anticipated net receipts under the swap or cap
to offset the dividend payments on the Fund Preferred Shares or rate of interest
on borrowings. Depending on whether the Fund would be entitled to receive net
payments from the counterparty on the swap or cap, which in turn would depend on
the general state of short-term interest rates at that point in time, such
default could negatively impact the performance of the Fund's Common Shares.
Although this will not guarantee that the counterparty does not default, the
Fund will not enter into an interest rate swap or cap transaction with any
counterparty that the Investment Manager believes does not have the financial
resources to honor its obligation under the interest rate swap or cap
transaction. Further, the Investment Manager will continually monitor the
financial stability of a counterparty to an interest rate swap or cap
transaction in an effort to proactively protect the Fund's investments. In
addition, at the time the interest rate swap or cap transaction reaches its
scheduled termination date, there is a risk that the Fund will not be able to
obtain a replacement transaction or that the terms of the replacement will not
be as favorable as on the expiring transaction. If this occurs, it could have a
negative impact on the performance of the Fund's Common Shares.

    The Fund will usually enter into swaps or caps on a net basis; that is, the
two payment streams will be netted out in a cash settlement on the payment date
or dates specified in the instrument, with the Fund receiving or paying, as the
case may be, only the net amount of the two payments. The Fund intends to
maintain in a segregated account with its custodian cash or liquid securities
having a value at least equal to the Fund's net payment obligations under any
swap transaction, marked to market daily.

    The Fund may choose or be required to redeem some or all of the Fund
Preferred Shares or prepay any borrowings. This redemption would likely result
in the Fund seeking to terminate early all or a portion of any swap or cap
transaction. Such early termination of a swap could result in termination
payment by or to the Fund. An early termination of a cap could result in a
termination payment to the Fund.

                                       25




<PAGE>
                          PRINCIPAL RISKS OF THE FUND

    We are a non-diversified, closed-end management investment company designed
primarily as a long-term investment and not as a trading vehicle. The Fund is
not intended to be a complete investment program and, due to the uncertainty
inherent in all investments, there can be no assurance that we will achieve our
investment objectives.

NO OPERATING HISTORY

    We are a newly organized non-diversified closed-end management investment
company with no operating history.

STOCK MARKET RISK

    Because prices of equity securities fluctuate from day-to-day, the value of
our portfolio and the price per Common Share will vary based upon general market
conditions.

GENERAL RISKS OF SECURITIES LINKED TO THE REAL ESTATE MARKET

    We will not invest in real estate directly, but only in securities issued by
real estate companies, including REITs. However, because of our policy of
concentration in the securities of companies in the real estate industry, we are
also subject to the risks associated with the direct ownership of real estate.
These risks include:

     declines in the value of real estate

     risks related to general and local economic conditions

     possible lack of availability of mortgage funds

     overbuilding

     extended vacancies of properties

     increased competition

     increases in property taxes and operating expenses

     changes in zoning laws

     losses due to costs resulting from the clean-up of environmental problems

     liability to third parties for damages resulting from environmental
     problems

     casualty or condemnation losses

     limitations on rents

     changes in neighborhood values and the appeal of properties to tenants

     changes in interest rates

    Thus, the value of the Common Shares may change at different rates compared
to the value of shares of a registered investment company with investments in a
mix of different industries and will depend on the general condition of the
economy. An economic downturn could have a material adverse effect on the real
estate markets and on real estate companies in which the Fund invests, which in
turn could result in the Fund not achieving its investment objectives.

    General Real Estate Risks. Real property investments are subject to varying
degrees of risk. The yields available from investments in real estate depend on
the amount of income and capital appreciation generated by the related
properties. Income and real estate values may also be

                                       26




<PAGE>
adversely affected by such factors as applicable laws (e.g., Americans with
Disabilities Act and tax laws), interest rate levels, and the availability of
financing. If the properties do not generate sufficient income to meet operating
expenses, including, where applicable, debt service, ground lease payments,
tenant improvements, third-party leasing commissions and other capital
expenditures, the income and ability of the real estate company to make payments
of any interest and principal on its debt securities will be adversely affected.
In addition, real property may be subject to the quality of credit extended and
defaults by borrowers and tenants. The performance of the economy in each of the
regions in which the real estate owned by the portfolio company is located
affects occupancy, market rental rates and expenses and, consequently, has an
impact on the income from such properties and their underlying values. The
financial results of major local employers also may have an impact on the cash
flow and value of certain properties. In addition, real estate investments are
relatively illiquid and, therefore, the ability of real estate companies to vary
their portfolios promptly in response to changes in economic or other conditions
is limited. A real estate company may also have joint venture investments in
certain of its properties, and consequently, its ability to control decisions
relating to such properties may be limited.

    Real property investments are also subject to risks which are specific to
the investment sector or type of property in which the real estate companies are
investing.

    Retail Properties. Retail properties are affected by the overall health of
the applicable economy. A retail property may be adversely affected by the
growth of alternative forms of retailing, bankruptcy, decline in drawing power,
departure or cessation of operations of an anchor tenant, a shift in consumer
demand due to demographic changes, and/or changes in consumer preference (for
example, to discount retailers) and spending patterns. A retail property may
also be adversely affected if a significant tenant ceases operation at such
location, voluntarily or otherwise. Certain tenants at retail properties may be
entitled to terminate their leases if an anchor tenant ceases operations at such
property.

    Office Properties. Office properties generally require their owners to
expend significant amounts for general capital improvements, tenant improvements
and costs of reletting space. In addition, office properties that are not
equipped to accommodate the needs of modern businesses may become functionally
obsolete and thus non-competitive. Office properties may also be adversely
affected if there is an economic decline in the businesses operated by their
tenants. The risks of such an adverse effect is increased if the property
revenue is dependent on a single tenant or if there is a significant
concentration of tenants in a particular business or industry.

    Hotel Properties. The risks of hotel properties include, among other things,
the necessity of a high level of continuing capital expenditures to keep
necessary furniture, fixtures and equipment updated, competition from other
hotels, increases in operating costs (which increases may not necessarily be
offset in the future by increased room rates), dependence on business and
commercial travelers and tourism, increases in fuel costs and other expenses of
travel, changes to regulation of operating liquor and other licenses, and
adverse effects of general and local economic conditions. Due to the fact that
hotel rooms are generally rented for short periods of time, hotel properties
tend to be more sensitive to adverse economic conditions and competition than
many other commercial properties.

    Also, hotels may be operated pursuant to franchise, management and operating
agreements that may be terminable by the franchiser, the manager or the
operator. Contrarily, it may be

                                       27




<PAGE>
difficult to terminate an ineffective operator of a hotel property subsequent to
a foreclosure of such property.

    Healthcare Properties. Healthcare properties and healthcare providers are
affected by several significant factors including federal, state and local laws
governing licenses, certification, adequacy of care, pharmaceutical
distribution, rates, equipment, personnel and other factors regarding
operations; continued availability of revenue from government reimbursement
programs (primarily Medicaid and Medicare); and competition in terms of
appearance, reputation, quality and cost of care with similar properties on a
local and regional basis.

    These governmental laws and regulations are subject to frequent and
substantial changes resulting from legislation, adoption of rules and
regulations, and administrative and judicial interpretations of existing law.
Changes may also be applied retroactively and the timing of such changes cannot
be predicted. The failure of any healthcare operator to comply with governmental
laws and regulations may affect its ability to operate its facility or receive
government reimbursement. In addition, in the event that a tenant is in default
on its lease, a new operator or purchaser at a foreclosure sale will have to
apply in its own right for all relevant licenses if such new operator does not
already hold such licenses. There can be no assurance that such new licenses
could be obtained, and consequently, there can be no assurance that any
healthcare property subject to foreclosure will be disposed of in a timely
manner.

    Multifamily Properties. The value and successful operation of a multifamily
property may be affected by a number of factors such as the location of the
property, the ability of management to provide adequate maintenance and
insurance, types of services provided by the property, the level of mortgage
rates, presence of competing properties, the relocation of tenants to new
projects with better amenities, adverse economic conditions in the locale, the
amount of rent charged, and oversupply of units due to new construction. In
addition, multifamily properties may be subject to rent control laws or other
laws affecting such properties, which could impact the future cash flows of such
properties.

    Insurance Issues. Certain of the portfolio companies may, in connection with
the issuance of securities, have disclosed that they carry comprehensive
liability, fire, flood, extended coverage and rental loss insurance with policy
specifications, limits and deductibles customarily carried for similar
properties. However such insurance is not uniform among the portfolio companies.
Moreover, there are certain types of extraordinary losses that may be
uninsurable, or not economically insurable. Certain of the properties may be
located in areas that are subject to earthquake activity for which insurance may
not be maintained. Should a property sustain damage as a result of an
earthquake, even if the portfolio company maintains earthquake insurance, the
portfolio company may incur substantial losses due to insurance deductibles,
co-payments on insured losses or uninsured losses. Should any type of uninsured
loss occur, the portfolio company could lose its investment in, and anticipated
profits and cash flows from, a number of properties and as a result, would
impact the Fund's investment performance.

    Credit Risk. REITs may be highly leveraged and financial covenants may
affect the ability of REITs to operate effectively. The portfolio companies are
subject to risks normally associated with debt financing. If the principal
payments of a real estate company's debt cannot be refinanced, extended or paid
with proceeds from other capital transactions, such as new equity capital, the
real estate company's cash flow may not be sufficient to repay all maturing debt
outstanding.

                                       28




<PAGE>
    In addition, a portfolio company's obligation to comply with financial
covenants, such as debt-to-asset ratios and secured debt-to-total asset ratios,
and other contractual obligations may restrict a REIT's range of operating
activity. A portfolio company, therefore, may be limited from incurring
additional indebtedness, selling its assets and engaging in mergers or making
acquisitions which may be beneficial to the operation of the REIT.

    Environmental Issues. In connection with the ownership (direct or indirect),
operation, management and development of real properties that may contain
hazardous or toxic substances, a portfolio company may be considered an owner or
operator of such properties or as having arranged for the disposal or treatment
of hazardous or toxic substances and, therefore, may be potentially liable for
removal or remediation costs, as well as certain other costs, including
governmental fines and liabilities for injuries to persons and property. The
existence of any such material environmental liability could have a material
adverse effect on the results of operations and cash flow of any such portfolio
company and, as a result, the amount available to make distributions on the
shares could be reduced.

    Smaller Companies. Even the larger REITs in the industry tend to be small to
medium-sized companies in relation to the equity markets as a whole. There may
be less trading in a smaller company's stock, which means that buy and sell
transactions in that stock could have a larger impact on the stock's price than
is the case with larger company stocks. Smaller companies also may have fewer
lines of business so that changes in any one line of business may have a greater
impact on a smaller company's stock price than is the case for a larger company.
Further, smaller company stocks may perform in different cycles than larger
company stocks. Accordingly, REIT shares can be more volatile than -- and at
times will perform differently from -- large company stocks such as those found
in the Dow Jones Industrial Average.

    Tax Issues. REITs are subject to a highly technical and complex set of
provisions in the Code. It is possible that the Fund may invest in a real estate
company which purports to be a REIT and that the company could fail to qualify
as a REIT. In the event of any such unexpected failure to qualify as a REIT, the
company would be subject to corporate-level taxation, significantly reducing the
return to the Fund on its investment in such company. REITs could possibly fail
to qualify for tax free pass-through of income under the Code, or to maintain
their exemptions from registration under the 1940 Act. The above factors may
also adversely affect a borrower's or a lessee's ability to meet its obligations
to the REIT. In the event of a default by a borrower or lessee, the REIT may
experience delays in enforcing its rights as a mortgagee or lessor and may incur
substantial costs associated with protecting its investments.

LEVERAGE RISK

    The Fund intends to use leverage by issuing Fund Preferred Shares,
representing approximately 33 1/3% of the Fund's capital after their issuance or
alternatively, through borrowing. Leverage is a speculative technique and there
are special risks and costs associated with leveraging. For a more detailed
description of the risks associated with leverage, see 'Use of Leverage.'

INTEREST RATE TRANSACTIONS RISK

    The Fund may enter into a swap or cap transaction to attempt to protect
itself from increasing dividend or interest expenses resulting from increasing
short-term interest rates. A decline in interest rates may result in a decline
in the value of the swap or cap which may result

                                       29




<PAGE>
in a decline in the net asset value of the Fund. A sudden and dramatic decline
in interest rates may result in a significant decline in the net asset value of
the Fund. See 'Interest Rate Transactions.'

RISKS OF INVESTMENT IN PREFERRED STOCKS AND DEBT SECURITIES

    In addition to the risks of equity securities and securities linked to the
real estate market, preferred stocks and debt securities also are more sensitive
to changes in interest rates than common stocks. When interest rates rise, the
value of preferred stocks and debt securities may fall.

RISKS OF INVESTMENT IN LOWER-RATED SECURITIES

    Lower-rated securities may be considered speculative with respect to the
issuer's continuing ability to make principal and interest payments. Analysis of
the creditworthiness of issuers of lower-rated securities may be more complex
than for issuers of higher quality debt securities, and our ability to achieve
our investment objectives may, to the extent we are invested in lower-rated
securities, be more dependent upon such creditworthiness analysis than would be
the case if we were investing in higher quality securities. We may invest in
high yield securities that are rated 'CCC' or higher by S&P or 'Caa' or higher
by Moody's or unrated securities that are determined by the Investment Manager
to be of comparable quality. An issuer of these securities has a currently
identifiable vulnerability to default and the issuer may be in default or there
may be present elements of danger with respect to principal or interest. We will
not invest in securities which are in default at the time of purchase.

    Lower-rated securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than higher grade securities. The
prices of lower-rated securities have been found to be less sensitive to
interest-rate changes than more highly rated investments, but more sensitive to
adverse economic downturns or individual corporate developments. Yields on
lower-rated securities will fluctuate. If the issuer of lower-rated securities
defaults, the Fund may incur additional expenses to seek recovery.

    The secondary markets in which lower-rated securities are traded may be less
liquid than the market for higher grade securities. Less liquidity in the
secondary trading markets could adversely affect the price at which we could
sell a particular lower-rated security when necessary to meet liquidity needs or
in response to a specific economic event, such as a deterioration in the
creditworthiness of the issuer, and could adversely affect and cause large
fluctuations in the net asset value of our shares. Adverse publicity and
investor perceptions may decrease the values and liquidity of high yield
securities.

    It is reasonable to expect that any adverse economic conditions could
disrupt the market for lower-rated securities, have an adverse impact on the
value of such securities, and adversely affect the ability of the issuers of
such securities to repay principal and pay interest thereon. New laws and
proposed new laws may adversely impact the market for lower-rated securities.

MARKET PRICE DISCOUNT FROM NET ASSET VALUE

    Shares of closed-end investment companies frequently trade at a discount
from their net asset value. This characteristic is a risk separate and distinct
from the risk that the Fund's net asset value could decrease as a result of our
investment activities and may be greater for investors expecting to sell their
shares in a relatively short period following completion of this offering. The

                                       30




<PAGE>
net asset value of the shares will be reduced immediately following the offering
as a result of the payment of certain offering costs. Whether investors will
realize gains or losses upon the sale of the shares will depend not upon the
Fund's net asset value but entirely upon whether the market price of the shares
at the time of sale is above or below the investor's purchase price for the
shares. Because the market price of the shares will be determined by factors
such as relative supply of and demand for shares in the market, general market
and economic conditions, and other factors beyond the control of the Fund, we
cannot predict whether the shares will trade at below or above net asset value,
or at below or above the initial public offering price.

                         ADDITIONAL RISK CONSIDERATIONS

PORTFOLIO TURNOVER

    We may engage in portfolio trading when considered appropriate, but
short-term trading will not be used as the primary means of achieving the Fund's
investment objectives. Although we cannot accurately predict our portfolio
turnover rate, it is not expected to exceed 100% under normal circumstances.
However, there are no limits on the rate of portfolio turnover, and investments
may be sold without regard to length of time held when, in the opinion of the
Investment Manager, investment considerations warrant such action. A higher
turnover rate results in correspondingly greater brokerage commissions and other
transactional expenses which are borne by the Fund. High portfolio turnover may
result in the realization of net short-term capital gains by the Fund which,
when distributed to shareholders, will be taxable as ordinary income. See
'Taxation.'

INFLATION RISK

    Inflation risk is the risk that the value of assets or income from
investments will be worth less in the future as inflation decreases the value of
money. As inflation increases, the real value of the Common Shares and
distributions can decline. In addition, during any periods of rising inflation,
Fund Preferred Shares dividend rates would likely increase, which would tend to
further reduce returns to Common Shareholders.

NON-DIVERSIFIED STATUS

    The Fund is classified as a 'non-diversified' investment company under the
1940 Act, which means we are not limited by the 1940 Act in the proportion of
our assets that may be invested in the securities of a single issuer. However,
we intend to conduct our operations so as to qualify as a regulated investment
company for purposes of the Code, which generally will relieve the Fund of any
liability for federal income tax to the extent our earnings are distributed to
shareholders. See 'Taxation' in the SAI. To so qualify, among other
requirements, we will limit our investments so that, at the close of each
quarter of the taxable year, (i) not more than 25% of the market value of our
total assets will be invested in the securities (other than U.S. Government
securities or the securities of other regulated investment companies) of a
single issuer, or two or more issuers which the Fund controls and are engaged in
the same, similar or related trades or businesses and (ii) at least 50% of the
market value of our total assets will be invested in cash and cash items, U.S.
Government securities, securities of other regulated investment companies and
other securities; provided, however, that with respect to such other securities,
not more than 5% of the market value of our total assets will be invested in the
securities of a single issuer and we will not own

                                       31




<PAGE>
more than 10% of the outstanding voting securities of a single issuer. Because
we, as a non-diversified investment company, may invest in a smaller number of
individual issuers than a diversified investment company, an investment in the
Fund presents greater risk to you than an investment in a diversified company.

ANTI-TAKEOVER PROVISIONS

    Certain provisions of our Articles of Incorporation and By-Laws may have the
effect of limiting the ability of other entities or persons to acquire control
of the Fund or to change our structure. These provisions may also have the
effect of depriving shareholders of an opportunity to sell their shares at a
premium over prevailing market prices. These include provisions for staggered
terms of office for Directors, super-majority voting requirements for merger,
consolidation, liquidation, termination and asset sale transactions, amendments
to the Articles of Incorporation, and conversion to open-end status. See
'Description of Shares' and 'Certain Provisions of the Articles of Incorporation
and By-Laws.'



RECENT DEVELOPMENTS

    As a result of the terrorist attacks on the World Trade Center and the
Pentagon on September 11, 2001, some of the U.S. securities markets were closed
for a four-day period. These terrorist attacks and related events have led to
increased short-term market volatility and may have long-term effects on U.S.
and world economies and markets. A similar disruption of the financial markets
could impact interest rates, auctions, secondary trading, ratings, credit risk,
inflation and other factors relating to the Common Shares and the Fund Preferred
Shares.

                             MANAGEMENT OF THE FUND


    The business and affairs of the Fund are managed under the direction of the
Board of Directors. The Directors approve all significant agreements between the
Fund and persons or companies furnishing services to it, including the Fund's
agreement with its Investment Manager, administrator, custodian and transfer
agent. The management of the Fund's day-to-day operations is delegated to its
officers, the Investment Manager and the Fund's administrator, subject always to
the investment objectives and policies of the Fund and to the general
supervision of the Directors. The names and business addresses of the Directors
and officers of the Fund and their principal occupations and other affiliations
during the past five years are set forth under 'Management of the Fund' in the
SAI.


INVESTMENT MANAGER

    Cohen & Steers Capital Management, Inc., with offices located at 757 Third
Avenue, New York, New York 10017, has been retained to provide investment
advice, and, in general, to conduct the management and investment program of the
Fund under the overall supervision and control of the Directors of the Fund.
Cohen & Steers Capital Management, Inc., a registered investment adviser, was
formed in 1986 and is a leading U.S. manager of portfolios dedicated to
investments primarily in REITs with more than $5.7 billion of assets under
management. Its current clients include pension plans, endowment funds and
registered investment companies, including the Fund, Cohen & Steers Advantage
Income Realty Fund, Inc. and Cohen & Steers

                                       32




<PAGE>
Total Return Realty Fund, Inc., which are closed-end investment companies, and
Cohen & Steers Institutional Realty Shares, Inc., Cohen & Steers Realty Shares,
Inc., Cohen & Steers Special Equity Fund, Inc. and Cohen & Steers Equity Income
Fund, Inc., which are open-end investment companies. Cohen & Steers Realty
Shares, Inc. is currently the largest registered investment company that invests
primarily in real estate securities. Cohen & Steers' client accounts are
invested principally in real estate securities.

INVESTMENT MANAGEMENT AGREEMENT

    Under its Investment Management Agreement with the Fund, the Investment
Manager furnishes a continuous investment program for the Fund's portfolio,
makes the day-to-day investment decisions for the Fund, and generally manages
the Fund's investments in accordance with the stated policies of the Fund,
subject to the general supervision of the Board of Directors of the Fund. The
Investment Manager also performs certain administrative services for the Fund
and provides persons satisfactory to the Directors of the Fund to serve as
officers of the Fund. Such officers, as well as certain other employees and
Directors of the Fund, may be directors, officers, or employees of the
Investment Manager.

    For its services under the Investment Management Agreement, the Fund pays
the Investment Manager a monthly management fee computed at the annual rate of
0.85% of the average daily managed asset value of the Fund. Managed asset value
is the net asset value of the Common Shares plus the liquidation preference of
any Fund Preferred Shares and the principal amount of any borrowings used for
leverage. This fee is higher than the fees incurred by many other investment
companies but is comparable to fees paid by many registered management
investment companies that invest primarily in real estate securities. In
addition to the monthly management fee, the Fund pays all other costs and
expenses of its operations, including compensation of its Directors, custodian,
transfer agency and dividend disbursing expenses, legal fees, expenses of
independent auditors, expenses of repurchasing shares, expenses of issuing any
Fund Preferred Shares, listing expenses, expenses of preparing, printing and
distributing shareholder reports, notices, proxy statements and reports to
governmental agencies, and taxes, if any. The Investment Manager has
contractually agreed to waive a portion of its investment management fees in the
amount of 0.32% of average daily total managed assets for the first 5 fiscal
years of the Fund's operations, 0.26% of average daily managed assets in year 6,
0.20% of average daily managed assets in year 7, 0.14% of average daily managed
assets in year 8, 0.08% of average daily managed assets in year 9 and 0.02% of
average daily managed assets in year 10. See 'Summary of Fund Expenses.' When
the Fund is utilizing leverage, the fees paid to the Investment Manager for
investment advisory and management services will be higher than if the Fund did
not utilize leverage because the fees paid will be calculated based on the
Fund's managed assets, which includes the liquidation preference of any Fund
Preferred Shares and the principal amount of borrowings for leverage. See 'Use
of Leverage.'

    The Fund's portfolio managers are:

        Martin Cohen -- Mr. Cohen is a Director, President and Treasurer of the
    Fund. He is, and has been since their inception, President of Cohen & Steers
    Capital Management, Inc., the Fund's investment adviser, and Vice President
    of Cohen & Steers Securities, Inc., a registered broker-dealer. Mr. Cohen is
    a 'controlling person' of the Investment Manager on the basis of his
    ownership of the Investment Manager's stock.

                                       33




<PAGE>
        Robert H. Steers -- Mr. Steers is a Director, Chairman and Secretary of
    the Fund. He is, and has been since their inception, Chairman of Cohen &
    Steers Capital Management, Inc., the Fund's investment adviser, and
    President of Cohen & Steers Securities, Inc., a registered broker-dealer.
    Mr. Steers is a 'controlling person' of the Investment Manager on the basis
    of his ownership of the Investment Manager's stock.

        Greg E. Brooks -- Mr. Brooks joined Cohen & Steers Capital Management,
    Inc., the Fund's investment adviser, as a Vice President in April 2000 and
    has been a Senior Vice President since January 2002. Prior to joining Cohen
    & Steers, Mr. Brooks was an investment analyst with another real estate
    securities investment manager. Mr. Brooks is a Certified Financial Analyst.

ADMINISTRATION AND SUB-ADMINISTRATION AGREEMENT

    Under its Administration Agreement with the Fund, the Investment Manager
provides certain administrative and accounting functions for the Fund, including
providing administrative services necessary for the operations of the Fund and
furnishing office space and facilities required for conducting the business of
the Fund.

    In accordance with the Administration Agreement and with the approval of the
Board of Directors of the Fund, the Fund has entered into an agreement with
State Street Bank as sub-administrator under a fund accounting and
administration agreement (the 'Sub-Administration Agreement'). Under the
Sub-Administration Agreement, State Street Bank has assumed responsibility for
certain fund administration services.

    Under the Administration Agreement, the Fund pays the Investment Manager an
amount equal to on an annual basis 0.02% of the Fund's managed assets. Under the
Sub-Administration agreement, the Fund pays State Street Bank a monthly
administration fee. The sub-administration fee paid by the Fund to State Street
Bank is computed on the basis of the net assets in the Fund at an annual rate
equal to 0.040% of the first $200 million in assets, 0.030% of the next $200
million, and 0.015% of assets in excess of $400 million, with a minimum fee of
$120,000. The aggregate fee paid by the Fund and the other funds advised by the
Investment Manager to State Street Bank is computed by multiplying the total
number of funds by each break point in the above schedule in order to determine
the aggregate break points to be used in calculating the total fee paid by the
Cohen & Steers family of funds (i.e., 6 funds at $200 million or $1.2 billion at
0.040%, etc.). The Fund is then responsible for its pro rata amount of the
aggregate administration fee. State Street Bank also serves as the Fund's
custodian and EquiServe Trust Company, NA has been retained to serve as the
Fund's transfer agent, dividend disbursing agent and registrar. See 'Custodian,
Transfer Agent, Dividend Disbursing Agent and Registrar.'

                          DIVIDENDS AND DISTRIBUTIONS

LEVEL RATE DIVIDEND POLICY

    Subject to the determination of the Board of Directors to implement a
Managed Dividend Policy, as discussed below, commencing with the Fund's first
dividend, the Fund intends to make regular monthly cash distributions to Common
Shareholders at a level rate based on the projected performance of the Fund,
which rate may be adjusted from time to time. Distributions can only be made
from net investment income after paying accrued dividends on Fund Preferred
Shares, if any,

                                       34




<PAGE>
and interest and required principal payments on Borrowings, if any, as well as
making any required payments on any interest rate transactions. The Fund's
ability to maintain a Level Rate Dividend Policy will depend on a number of
factors, including the stability of income received from its investments and
dividends payable on Fund Preferred Shares, if any, and interest and required
principal payments on Borrowings, if any. Over time, all the net investment
income of the Fund will be distributed. At least annually, the Fund intends to
distribute all of its net capital gain and ordinary taxable income after paying
any accrued dividends on, or redeeming or liquidating, any Fund Preferred
Shares, if any, or making interest and required principal payments on
Borrowings, if any. Initial distributions to Common Shareholders are expected to
be declared approximately 45 days, and paid approximately 60 to 75 days, from
the commencement of this offering, depending upon market conditions. The net
income of the Fund consists of all interest income accrued on portfolio assets
less all expenses of the Fund. Expenses of the Fund are accrued each day. In
addition, the Fund currently expects that a portion of its distributions will
consist of amounts in excess of investment company taxable income and net
capital gain derived from the non-taxable components of the cash flow from the
real estate underlying the Fund's portfolio investments. To permit the Fund to
maintain a more stable monthly distribution, the Fund will initially distribute
less than the entire amount of net investment income earned in a particular
period. The undistributed net investment income would be available to supplement
future distributions. As a result, the distributions paid by the Fund for any
particular monthly period may be more or less than the amount of net investment
income actually earned by the Fund during the period. Undistributed net
investment income will be added to the Fund's net asset value and,
correspondingly, distributions from undistributed net investment income will be
deducted from the Fund's net asset value. See 'Taxation.'

MANAGED DIVIDEND POLICY

    Following the commencement of this offering, the Fund intends to file an
exemptive application with the Securities and Exchange Commission seeking an
order under the 1940 Act facilitating the implementation of a Managed Dividend
Policy. If, and when, the Fund receives the requested relief, the Fund may,
subject to the determination of its Board of Directors, implement a Managed
Dividend Policy. Under a Managed Dividend Policy, the Fund would intend to
distribute a monthly fixed percentage of net asset value to Common Shareholders.
As with the Level Dividend Rate Policy, distributions would be made only after
paying dividends on Fund Preferred Shares, if any, and interest and required
principal payments on Borrowings, if any. Under a Managed Dividend Policy, if,
for any monthly distribution, net investment income and net realized capital
gain were less than the amount of the distribution, the difference would be
distributed from the Fund's assets. The Fund's final distribution for each
calendar year would include any remaining net investment income and net realized
capital gain undistributed during the year. Pursuant to the requirements of the
1940 Act and other applicable laws, a notice would accompany each monthly
distribution with respect to the estimated source of the distribution made. In
the event the Fund distributed in any calendar year amounts in excess of net
investment income and net realized capital gain (such excess, the 'Excess'),
such distribution would decrease the Fund's total assets and, therefore, have
the likely effect of increasing the Fund's expense ratio. There is a risk that
the Fund would not eventually realize capital gains in an amount corresponding
to a distribution of the Excess. In addition, in order to make such
distributions, the Fund may have to sell a portion of its investment portfolio
at a time when independent investment judgment might not

                                       35




<PAGE>
dictate such action. There is no guarantee that the Fund will receive an
exemptive order facilitating the implementation of a Managed Dividend Policy or,
if received, that the Board of Directors will determine to implement a Managed
Dividend Policy. The Board of Directors reserves the right to change the
dividend policy from time to time.

DIVIDEND REINVESTMENT PLAN

    The Fund has a Dividend Reinvestment Plan (the 'Plan') commonly referred to
as an 'opt-out' plan. Each shareholder will have all distributions of dividends
and capital gains automatically reinvested in additional Common Shares by
EquiServe Trust Company, NA as agent for shareholders pursuant to the Plan (the
'Plan Agent'), unless they elect to receive cash. The Plan Agent will either
(i) effect purchases of Common Shares under the Plan in the open market or
(ii) distribute newly issued Common Shares of the Fund. Shareholders who elect
not to participate in the Plan will receive all distributions in cash paid by
check mailed directly to the shareholder of record (or if the shares are held in
street or other nominee name, then to the nominee) by the Plan Agent, as
dividend disbursing agent. Shareholders whose Common Shares are held in the name
of a broker or nominee should contact the broker or nominee to determine whether
and how they may participate in the Plan.

    The Plan Agent serves as agent for the shareholders in administering the
Plan. After the Fund declares a dividend or makes a capital gain distribution,
the Plan Agent will, as agent for the participants, either (i) receive the cash
payment and use it to buy Common Shares in the open market, on the New York
Stock Exchange or elsewhere, for the participants' accounts or (ii) distribute
newly issued Common Shares of the Fund on behalf of the participants. The Plan
Agent will receive cash from the Fund with which to buy Common Shares in the
open market if, on the determination date, the net asset value per share exceeds
the market price per share plus estimated brokerage commissions on that date.
The Plan Agent will receive the dividend or distribution in newly issued Common
Shares of the Fund if, on the determination date, the market price per share
plus estimated brokerage commissions equals or exceeds the net asset value per
share of the Fund on that date. The number of shares to be issued will be
computed at a per share rate equal to the greater of (i) the net asset value or
(ii) 95% of the closing market price per share on the payment date.

    Participants in the Plan may withdraw from the Plan upon written notice to
the Plan Agent. Such withdrawal will be effective immediately if received not
less than ten days prior to a distribution record date; otherwise, it will be
effective for all subsequent dividend record dates. When a participant withdraws
from the Plan or upon termination of the Plan as provided below, certificates
for whole Common Shares credited to his or her account under the Plan will be
issued and a cash payment will be made for any fraction of a Common Share
credited to such account. In the alternative, upon receipt of the participant's
instructions, Common Shares will be sold and the proceeds sent to the
participant less brokerage commissions and any applicable taxes.

    The Plan Agent maintains each shareholder's account in the Plan and
furnishes confirmations of all acquisitions made for the participant as soon as
practicable but no later than 60 days. Common Shares in the account of each Plan
participant will be held by the Plan Agent on behalf of the participant. Proxy
material relating to shareholders' meetings of the Fund will include those
shares purchased as well as shares held pursuant to the Plan.

                                       36




<PAGE>
    In the case of shareholders, such as banks, brokers or nominees, which hold
Common Shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of Common Shares certified from
time to time by the record shareholders as representing the total amount
registered in the record shareholder's name and held for the account of
beneficial owners who are participants in the Plan. Common Shares may be
purchased through any of the underwriters, acting as broker or, after the
completion of this offering, dealer.

    The Plan Agent's fees for the handling of reinvestment of dividends and
other distributions will be paid by the Fund. Each participant will pay a pro
rata share of brokerage commissions incurred with respect to the Plan Agent's
open market purchases in connection with the reinvestment of distributions.
There are no other charges to participants for reinvesting dividends or capital
gain distributions. See 'Taxation.'

    The automatic reinvestment of dividends and other distributions will not
relieve participants of any income tax that may be payable or required to be
withheld on such dividends or distributions.

    Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any distribution paid subsequent to written notice of the change sent
to all shareholders of the Fund at least 90 days before the record date for the
dividend or distribution. The Plan also may be amended or terminated by the Plan
Agent by at least 90 days' written notice to all shareholders of the Fund. All
correspondence concerning the Plan should be directed to the Plan Agent by
telephone at 800-426-5523.

                              CLOSED-END STRUCTURE

    The Fund is a recently organized, non-diversified management investment
company (commonly referred to as a closed-end fund). Closed-end funds differ
from open-end funds (which are generally referred to as mutual funds) in that
closed-end funds generally list their shares for trading on a stock exchange and
do not redeem their shares at the request of the shareholder. This means that if
you wish to sell your shares of a closed-end fund you must trade them on the
market like any other stock at the prevailing market price at that time. In a
mutual fund, if the shareholder wishes to sell shares, the mutual fund will
redeem or buy back the shares at 'net asset value.' Mutual funds generally offer
new shares on a continuous basis to new investors, and closed-end funds
generally do not. The continuous inflows and outflows of assets in a mutual fund
can make it difficult to manage the fund's investments. By comparison,
closed-end funds are generally able to stay fully invested in securities that
are consistent with their investment objectives, and also have greater
flexibility to make certain types of investments, and to use certain investment
strategies, such as financial leverage and investments in illiquid securities.

    Shares of closed-end funds frequently trade at a discount to their net asset
value. Because of this possibility and the recognition that any such discount
may not be in the best interest of shareholders, the Fund's Board of Directors
might consider from time to time engaging in open market repurchases, tender
offers for shares at net asset value or other programs intended to reduce the
discount. We cannot guarantee or assure, however, that the Fund's Board will
decide to engage in any of these actions. Nor is there any guarantee or
assurance that such actions, if undertaken, would result in shares trading at a
price equal or close to net asset value per share. See 'Repurchase of Shares.'
The Board of Directors might also consider converting the Fund to an open-end
mutual fund, which would also require a vote of the shareholders of the Fund.

                                       37




<PAGE>
                     POSSIBLE CONVERSION TO OPEN-END STATUS

    The Fund may be converted to an open-end investment company at any time by a
vote of the outstanding shares. See 'Certain Provisions of the Articles of
Incorporation and By-Laws' for a discussion of voting requirements applicable to
conversion of the Fund to an open-end investment company. If the Fund converted
to an open-end investment company, it would be required to redeem all Fund
Preferred Shares then outstanding (requiring in turn that it liquidate a portion
of its investment portfolio) and the Fund's Common Shares would no longer be
listed on the New York Stock Exchange. Conversion to open-end status could also
require the Fund to modify certain investment restrictions and policies.
Shareholders of an open-end investment company may require the company to redeem
their shares at any time (except in certain circumstances as authorized by or
permitted under the 1940 Act) at their net asset value, less such redemption
charge, if any, as might be in effect at the time of redemption. In order to
avoid maintaining large cash positions or liquidating favorable investments to
meet redemptions, open-end investment companies typically engage in a continuous
offering of their shares. Open-end investment companies are thus subject to
periodic asset in-flows and out-flows that can complicate portfolio management.
The Board of Directors may at any time propose conversion of the Fund to open-
end status, depending upon its judgment regarding the advisability of such
action in light of circumstances then prevailing.

                              REPURCHASE OF SHARES

    Shares of closed-end investment companies often trade at a discount to net
asset value, and the Fund's shares may also trade at a discount to their net
asset value, although it is possible that they may trade at a premium above net
asset value. The market price of the Fund's shares will be determined by such
factors as relative demand for and supply of shares in the market, the Fund's
net asset value, general market and economic conditions and other factors beyond
the control of the Fund. Although Common Shareholders will not have the right to
redeem their shares, the Fund may take action to repurchase shares in the open
market or make tender offers for its shares at net asset value. During the
pendency of any tender offer, the Fund will publish how Common Shareholders may
readily ascertain the net asset value. For more information see 'Repurchase of
Shares' in the SAI. Repurchase of the Common Shares may have the effect of
reducing any market discount to net asset value.

    There is no assurance that, if action is undertaken to repurchase or tender
for shares, such action will result in the shares' trading at a price which
approximates their net asset value. Although share repurchases and tenders could
have a favorable effect on the market price of the shares, you should be aware
that the acquisition of shares by the Fund will decrease the total assets of the
Fund and, therefore, have the effect of increasing the Fund's expense ratio and
may adversely affect the ability of the Fund to achieve its investment
objectives. To the extent the Fund may need to liquidate investments to fund
repurchases of shares, this may result in portfolio turnover which will result
in additional expenses being borne by the Fund. The Board of Directors currently
considers the following factors to be relevant to a potential decision to
repurchase shares: the extent and duration of the discount, the liquidity of the
Fund's portfolio, the impact of any action on the Fund or its shareholders and
market considerations. Any share repurchases or tender offers will be made in
accordance with the requirements of the Securities Exchange Act of 1934 and the
1940 Act. See 'Taxation' for a description of the potential tax consequences of
a share repurchase.

                                       38




<PAGE>
                                    TAXATION

    The following brief tax discussion assumes you are a U.S. shareholder and
that you hold your shares as a capital asset. In the SAI we have provided more
detailed information regarding the tax consequences of investing in the Fund.
Dividends paid to you out of the Fund's current and accumulated earnings and
profits will, except in the case of capital gain dividends described below, be
taxable to you as ordinary income. Distributions of net capital gain (the excess
of net long-term capital gain over net short-term capital loss), if any,
designated as capital gain dividends are taxable to you as long-term capital
gains, regardless of how long you have held your Fund shares. A distribution of
an amount in excess of the Fund's current and accumulated earnings and profits
is treated as a non-taxable return of capital that reduces your tax basis in
your Fund shares; any such distributions in excess of your basis are treated as
gain from a sale of your shares. The tax treatment of your dividends and
distributions will be the same regardless of whether they were paid to you in
cash or reinvested in additional Fund shares.

    A distribution will be treated as paid to you on December 31 of the current
calendar year if it is declared by the Fund in October, November or December
with a record date in such a month and paid during January of the following
year.

    Each year, we will notify you of the tax status of dividends and other
distributions.

    If you sell your Fund shares, or have shares repurchased by the Fund, you
may realize a capital gain or loss which will be long-term or short-term,
depending generally on your holding period for the shares.

    We may be required to withhold U.S. federal income tax on all taxable
distributions and redemption proceeds payable if you

     fail to provide us with your correct taxpayer identification number;

     fail to make required certifications; or

     have been notified by the Internal Revenue Service that you are subject to
     backup withholding.

    Backup withholding is not an additional tax. Any amounts withheld may be
credited against your U.S. federal income tax liability.

    The Fund intends to qualify as a regulated investment company under federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of the sum of its investment company taxable income
(as that term is defined in the Code, but without regard to the deduction for
dividends paid) and net tax-exempt interest, the Fund will not be required to
pay federal income taxes on any income it distributes to shareholders. If the
Fund distributes less than an amount equal to the sum of 98% of its ordinary
income for the calendar year and 98% of its capital gain net income for the
one-year period ending on October 31 of such calendar year, plus such amounts
from previous years that were not distributed, then the Fund will be subject to
a nondeductible 4% excise tax on the undistributed amounts. Fund distributions
also may be subject to state and local taxes. You should consult with your own
tax adviser regarding the particular consequences of investing in the Fund.

                                       39




<PAGE>
                             DESCRIPTION OF SHARES

COMMON SHARES

    The Fund is authorized to issue 100,000,000 shares of Common Shares, $0.001
par value. The Common Shares have no preemptive, conversion, exchange or
redemption rights. Each share has equal voting, dividend, distribution and
liquidation rights. The Common Shares outstanding are, and those offered hereby
when issued, will be, fully paid and nonassessable. Common Shareholders are
entitled to one vote per share. All voting rights for the election of Directors
are noncumulative, which means that, assuming there are no Fund Preferred Shares
outstanding, the holders of more than 50% of the Common Shares can elect 100% of
the Directors then nominated for election if they choose to do so and, in such
event, the holders of the remaining Common Shares will not be able to elect any
Directors. Whenever Fund Preferred Shares or borrowings are outstanding, holders
of Common Shares will not be entitled to receive any distributions from the Fund
unless all accrued dividends on the Fund Preferred Shares and interest and
principal payments on borrowings have been paid, and unless the applicable asset
coverage requirements under the 1940 Act would be satisfied after giving effect
to the distribution. See 'Fund Preferred Shares' below. The Fund's Common Shares
have been approved for listing on the New York Stock Exchange upon notice of
issuance under the symbol 'RQI.' Under the rules of the New York Stock Exchange
applicable to listed companies, the Fund will be required to hold an annual
meeting of shareholders in each year. The foregoing description and the
descriptions below under 'Fund Preferred Shares' and 'Certain Provisions of the
Articles of Incorporation and By-Laws' and above under 'Possible Conversion to
Open-End Status' are subject to the provisions contained in the Fund's Articles
of Incorporation and By-Laws.

FUND PREFERRED SHARES

    The Fund's Articles of Incorporation authorize the Board of Directors,
without approval of the Common Stockholders, to classify any unissued shares of
the Fund's common stock into preferred shares, par value $0.001 per share, in
one or more classes or series, with rights as determined by the Board of
Directors.

    The Fund's Board of Directors has indicated its intention to authorize an
offering of Fund Preferred Shares (representing approximately 33 1/3% of the
Fund's capital immediately after the time the Fund Preferred Shares are issued)
approximately one to three months after completion of the offering of Common
Shares. Any such decision is subject to market conditions, the Fund's receipt of
a AAA/aaa credit rating on the Fund Preferred Shares and to the Board's
continuing belief that leveraging the Fund's capital structure through the
issuance of Fund Preferred Shares is likely to achieve the benefits to the
Common Shareholders described in this prospectus. The Board of Directors has
indicated that the preference on distribution, liquidation preference, and
redemption provisions of the Fund Preferred Shares will likely be as stated
below.

    Limited Issuance of Fund Preferred Shares. Under the 1940 Act, the Fund
could issue Fund Preferred Shares with an aggregate liquidation value of up to
one-half of the value of the Fund's total assets less liabilities other than
borrowings, measured immediately after issuance of the Fund Preferred Shares.
'Liquidation value' means the original purchase price of the shares being
liquidated plus any accrued and unpaid dividends. In addition, the Fund is not
permitted to declare any cash dividend or other distribution on its Common
Shares unless the liquidation value

                                       40




<PAGE>
of the Fund Preferred Shares is less than one-half of the value of the Fund's
total assets less liabilities other than borrowings (determined after deducting
the amount of such dividend or distribution) immediately after the distribution.
If the Fund sells all the Common Shares and Fund Preferred Shares discussed in
this prospectus, the liquidation value of the Fund Preferred Shares is expected
to be approximately 33 1/3% of the value of the Fund's total assets less
liabilities other than borrowings. The Fund intends to purchase or redeem Fund
Preferred Shares, if necessary, to keep that fraction below one-half.

    Distribution Preference. The Fund Preferred Shares will have complete
priority over the Common Shares.

    Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Fund, holders of
Fund Preferred Shares will be entitled to receive a preferential liquidating
distribution (expected to equal the original purchase price per share plus
accumulated and unpaid dividends thereon, whether or not earned or declared)
before any distribution of assets is made to holders of Common Shares.

    Voting Rights. Fund Preferred Shares are required to be voting shares and to
have equal voting rights with Common Shares. Except as otherwise indicated in
this Prospectus or the SAI and except as otherwise required by applicable law,
holders of Fund Preferred Shares will vote together with Common Shareholders as
a single class.

    Holders of Fund Preferred Shares, voting as a separate class, will be
entitled to elect two of the Fund's Directors. The remaining Directors will be
elected by Common Shareholders and holders of Fund Preferred Shares, voting
together as a single class. In the unlikely event that two full years of accrued
dividends are unpaid on the Fund Preferred Shares, the holders of all
outstanding Fund Preferred Shares, voting as a separate class, will be entitled
to elect a majority of the Fund's Directors until all dividends in arrears have
been paid or declared and set apart for payment. In order for the Fund to take
certain actions or enter into certain transactions, a separate class vote of
holders of Fund Preferred Shares will be required, in addition to the combined
single class vote of the holders of Fund Preferred Shares and Common Shares.

    Redemption, Purchase and Sale of Fund Preferred Shares. The terms of the
Fund Preferred Shares may provide that they are redeemable at certain times, in
whole or in part, at the original purchase price per share plus accumulated
dividends. The terms may also state that the Fund may tender for or purchase
Fund Preferred Shares and resell any shares so tendered. Any redemption or
purchase of Fund Preferred Shares by the Fund will reduce the leverage
applicable to Common Shares, while any resale of shares by the Fund will
increase such leverage. See 'Use of Leverage.'

    The discussion above describes the Board of Directors' present intention
with respect to a possible offering of Fund Preferred Shares. If the Board of
Directors determines to authorize such an offering, the terms of the Fund
Preferred Shares may be the same as, or different from, the terms described
above, subject to applicable law and the Fund's Articles of Incorporation.

    As of the date of this prospectus, Cohen & Steers Capital Management, Inc.
owned of record and beneficially 7,000 shares of the Fund's Common Shares,
constituting 100% of the outstanding shares of the Fund, and thus, until the
public offering of the shares is completed, will control the Fund.

                                       41




<PAGE>
        CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BY-LAWS

    The Fund has provisions in its Articles of Incorporation and By-Laws that
could have the effect of limiting the ability of other entities or persons to
acquire control of the Fund, to cause it to engage in certain transactions or to
modify its structure. Commencing with the first annual meeting of shareholders,
the Board of Directors will be divided into three classes, having initial terms
of one, two and three years, respectively. At the annual meeting of shareholders
in each year thereafter, the term of one class will expire and directors will be
elected to serve in that class for terms of three years. This provision could
delay for up to two years the replacement of a majority of the Board of
Directors. A director may be removed from office only for cause and only by a
vote of the holders of at least 75% of the outstanding shares of the Fund
entitled to vote on the matter.

    The affirmative vote of at least 75% of the entire Board of Directors is
required to authorize the conversion of the Fund from a closed-end to an
open-end investment company. Such conversion also requires the affirmative vote
of the holders of at least 75% of the votes entitled to be cast thereon by the
shareholders of the Fund unless it is approved by a vote of at least 75% of the
Continuing Directors (as defined below), in which event such conversion requires
the approval of the holders of a majority of the votes entitled to be cast
thereon by the shareholders of the Fund. A 'Continuing Director' is any member
of the Board of Directors of the Fund who (i) is not a person or affiliate of a
person who enters or proposes to enter into a Business Combination (as defined
below) with the Fund (an 'Interested Party') and (ii) who has been a member of
the Board of Directors of the Fund for a period of at least 12 months, or has
been a member of the Board of Directors since the Fund's initial public offering
of Common Shares, or is a successor of a Continuing Director who is unaffiliated
with an Interested Party and is recommended to succeed a Continuing Director by
a majority of the Continuing Directors then on the Board of Directors of the
Fund. The affirmative vote of at least 75% of the votes entitled to be cast
thereon by shareholders of the Fund will be required to amend the Articles of
Incorporation to change any of the provisions in this paragraph and the
preceding paragraph.

    The affirmative votes of at least 75% of the entire Board of Directors and
the holders of at least (i) 80% of the votes entitled to be cast thereon by the
shareholders of the Fund and (ii) in the case of a Business Combination (as
defined below), 66 2/3% of the votes entitled to be cast thereon by the
shareholders of the Fund other than votes held by an Interested Party who is (or
whose affiliate is) a party to a Business Combination (as defined below) or an
affiliate or associate of the Interested Party, are required to authorize any of
the following transactions:

        (i) merger, consolidation or statutory share exchange of the Fund with
    or into any other entity;

        (ii) issuance or transfer by the Fund (in one or a series of
    transactions in any 12-month period) of any securities of the Fund to any
    person or entity for cash, securities or other property (or combination
    thereof) having an aggregate fair market value of $1,000,000 or more,
    excluding (a) issuances or transfers of debt securities of the Fund,
    (b) sales of securities of the Fund in connection with a public offering,
    (c) issuances of securities of the Fund pursuant to a dividend reinvestment
    plan adopted by the Fund, (d) issuances of securities of the Fund upon the
    exercise of any stock subscription rights distributed by the Fund and
    (e) portfolio transactions effected by the Fund in the ordinary course of
    business;

                                       42




<PAGE>
        (iii) sale, lease, exchange, mortgage, pledge, transfer or other
    disposition by the Fund (in one or a series of transactions in any 12 month
    period) to or with any person or entity of any assets of the Fund having an
    aggregate fair market value of $1,000,000 or more except for portfolio
    transactions (including pledges of portfolio securities in connection with
    borrowings) effected by the Fund in the ordinary course of its business
    (transactions within clauses (i), (ii) and (iii) above being known
    individually as a 'Business Combination');

        (iv) any voluntary liquidation or dissolution of the Fund or an
    amendment to the Fund's Articles of Incorporation to terminate the Fund's
    existence; or

        (v) any shareholder proposal as to specific investment decisions made or
    to be made with respect to the Fund's assets as to which shareholder
    approval is required under federal or Maryland law.

    However, the shareholder vote described above will not be required with
respect to the foregoing transactions (other than those set forth in (v) above)
if they are approved by a vote of at least 75% of the Continuing Directors (as
defined above). In that case, if Maryland law requires shareholder approval, the
affirmative vote of a majority of votes entitled to be cast thereon shall be
required and if Maryland law does not require shareholder approval, no
shareholder approval will be required. The Fund's By-Laws contain provisions the
effect of which is to prevent matters, including nominations of directors, from
being considered at a shareholders' meeting where the Fund has not received
notice of the matters generally at least 90 but no more than 120 days prior to
the first anniversary of the preceding year's annual meeting.

    The Board of Directors has determined that the foregoing voting
requirements, which are generally greater than the minimum requirements under
Maryland law and the 1940 Act, are in the best interest of the Fund's
shareholders generally.

    Reference is made to the Articles of Incorporation and By-Laws of the Fund,
on file with the Commission, for the full text of these provisions. These
provisions could have the effect of depriving shareholders of an opportunity to
sell their shares at a premium over prevailing market prices by discouraging a
third party from seeking to obtain control of the Fund in a tender offer or
similar transaction. On the other hand, these provisions may require persons
seeking control of a Fund to negotiate with its management regarding the price
to be paid for the shares required to obtain such control, they promote
continuity and stability and they enhance the Fund's ability to pursue long-term
strategies that are consistent with its investment objectives.

                                       43









<PAGE>

                                  UNDERWRITING


    Subject to the terms and conditions stated in the purchase agreement dated
February 25, 2002 each underwriter named below has severally agreed to purchase,
and the Fund has agreed to sell to such underwriter, the number of Common Shares
set forth opposite the name of such underwriter.


<Table>
<Caption>
                                                                NUMBER OF
                 UNDERWRITER                                  COMMON SHARES
                 -----------                                  -------------
<S>                                                           <C>
Merrill Lynch, Pierce, Fenner & Smith
           Incorporated.....................................
A.G. Edwards & Sons, Inc. ..................................
Prudential Securities Incorporated..........................
Raymond James & Associates, Inc. ...........................
CIBC World Markets Corp. ...................................
Deutsche Banc Alex. Brown Inc. .............................
First Union Securities, Inc. ...............................
Legg Mason Wood Walker, Incorporated........................
U.S. Bancorp Piper Jaffray Inc. ............................
Wells Fargo Securities, LLC.................................
Robert W. Baird & Co. Incorporated..........................
Fahnestock & Co. Inc. ......................................
Janney Montgomery Scott LLC.................................
Morgan Keegan & Company, Inc. ..............................
Quick & Reilly, Inc. .......................................
                                                                 ------
           Total............................................
                                                                 ------
                                                                 ------
</Table>

    The purchase agreement provides that the obligations of the underwriters to
purchase the shares included in this offering are subject to the approval of
certain legal matters by counsel and to certain other conditions. The
underwriters are obligated to purchase all the Common Shares sold under the
purchase agreement if any of the Common Shares are purchased. In the purchase
agreement, the Fund and the Investment Manager have agreed to indemnify the
underwriters against certain liabilities, including liabilities arising under
the Securities Act of 1933, or to contribute payments the underwriters may be
required to make for any of those liabilities.


    The underwriters propose to initially offer some of the Common Shares
directly to the public at the public offering price set forth on the cover page
of this prospectus and some of the Common Shares to certain dealers at the
public offering price less a concession not in excess of $   per share. The
sales load investors in the Fund will pay of $   per share is equal to   % of
the initial offering price. The underwriters may allow, and the dealers may
reallow, a discount not in excess of $   per share on sales to other dealers.
After the initial public offering, the public offering price, concession and
discount may be changed.


                                       44




<PAGE>
    The following table shows the public offering price, sales load and proceeds
before expenses to the Fund. The information assumes either no exercise or full
exercise by the underwriters of their over-allotment option.


<Table>
<Caption>
                                                   PER SHARE   WITHOUT OPTION   WITH OPTION
                                                   ---------   --------------   -----------
<S>                                                <C>         <C>              <C>
Public offering price............................    $15.00         $               $
Sales load.......................................     $             $               $
Proceeds, before expenses, to the Fund...........   $               $               $
</Table>


    The expenses of the offering are estimated at           and are payable by
the Fund. The Investment Manager has agreed to pay (i) all organizational
expenses and (ii) offering costs of the Fund (other than sales load) that exceed
$0.03 per share of the Fund's Common Shares.

    The Fund has granted the underwriters an option to purchase up to
additional Common Shares at the public offering price, less the sales load,
within 45 days from the date of this prospectus solely to cover any
over-allotments. If the underwriters exercise this option, each will be
obligated, subject to conditions contained in the purchase agreement, to
purchase a number of additional shares proportionate to that underwriter's
initial amount reflected in the above table.

    Until the distribution of the Common Shares is complete, SEC rules may limit
underwriters and selling group members from bidding for and purchasing our
Common Shares. However, the representatives may engage in transactions that
stabilize the price of our Common Shares, such as bids or purchases to peg, fix
or maintain that price.

    If the underwriters create a short position in our Common Shares in
connection with the offering, i.e., if they sell more Common Shares than are
listed on the cover of this prospectus, the representatives may reduce that
short position by purchasing Common Shares in the open market. The
representatives may also elect to reduce any short position by exercising all or
part of the over-allotment option described above. Purchases of our Common
Shares to stabilize its price or to reduce a short position may cause the price
of our Common Shares to be higher than it might be in the absence of such
purchases.

    Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transaction
described above may have on the price of our Common Shares. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.

    The Fund has agreed not to offer or sell any additional Common Shares for a
period of 180 days after the date of the purchase agreement without the prior
written consent of the underwriters, except for the sale of the Common Shares to
the underwriters pursuant to the purchase agreement.

    The Fund anticipates that the underwriters may from time to time act as
brokers or dealers in executing the Fund's portfolio transactions after they
have ceased to be underwriters. The underwriters are active underwriters of, and
dealers in, securities and act as market makers in a number of such securities,
and therefore can be expected to engage in portfolio transactions with the Fund.


    The Fund will use   % of the net proceeds of this offering (excluding the
over-allotment option) to purchase, immediately after the closing of this
offering, REIT common and preferred stock issued in transactions for which
Merrill Lynch has served as placement agent for the issuer. See 'Direct
Payments'. A portion of the placement agent fees payable to Merrill Lynch by the
issuers


                                       45




<PAGE>

in connection with these Direct Placements has been applied as a credit against
sales loads that would otherwise be paid by investors in the Fund. The effect of
this sales load credit is to reduce the sales load payable by Fund investors
from 4.5% to    and will result in an initial net asset value of $    , before
deduction of organization and offering expenses. However, the underwriters will
in any case receive compensation equal to 4.5% of the initial offering price as
a result of receiving a combination of the actual sales load paid by Fund
investors and the portion of the placement agent fees paid from Merrill Lynch to
the underwriters.



    The Investment Manager has also agreed to pay from its own assets an
additional commission to Merrill Lynch. This additional commission will be
payable quarterly at the annual rate of 0.10% of the Fund's managed assets
during the continuance of the Investment Management Agreement or other advisory
agreement between the Investment Manager and the Fund. The total amount of these
additional commission payments will not exceed 5% of the total price to public
of the Common Shares offered hereby; provided, that in determining when the
maximum additional commission amount has been paid, the value of each of the
quarterly payments shall be discounted at the annual rate of 10% to the closing
date of this offering. Merrill Lynch has agreed to provide certain after-market
support services designed to maintain the visibility of the Fund on an ongoing
basis, and Merrill Lynch has additionally agreed to (i) provide to the
Investment Manager relevant information, studies or reports regarding general
trends in the closed-end investment company and asset management industries and
(ii) at the request of the Investment Manager, provide information to and
consult with representatives of the Investment Manager with respect to
applicable strategies designed to address market value discounts, if any.


    First Union Securities, Inc., a subsidiary of Wachovia Corporation, conducts
its investment banking, institutional, and capital markets businesses under the
trade name of Wachovia Securities. Any references to 'Wachovia Securities' in
this prospectus, however, do not include Wachovia Securities, Inc., a separate
broker-dealer subsidiary of Wachovia Corporation and sister affiliate of First
Union Securities, Inc., which may or may not be participating as a separate
selling dealer in the distribution of the Common Shares.

                               DIRECT PLACEMENTS

    As of the date of this prospectus, the Fund has entered into binding Direct
Placement contracts with the following companies:

<Table>
<Caption>
NAME OF ISSUER                              PRICE PER SHARE TO PORFOLIO    TOTAL COST TO PORTFOLIO
- --------------                              ---------------------------    -----------------------
<S>                                         <C>                            <C>
</Table>

       CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR

    State Street Bank and Trust Company, whose principal business address is 225
Franklin Street, Boston, MA 02110, has been retained to act as custodian of the
Fund's investments and EquiServe Trust Company, NA, whose principal business
address is 150 Royall Street, Canton, MA 02021 to serve as the Fund's transfer
and dividend disbursing agent and registrar. Neither State Street Bank nor
EquiServe Trust Company, NA has any part in deciding the Fund's investment
policies or which securities are to be purchased or sold for the Fund's
portfolio.

                                       46




<PAGE>
                            REPORTS TO SHAREHOLDERS

    The Fund will send unaudited semi-annual and audited annual reports to its
shareholders, including a list of investments held.

                             VALIDITY OF THE SHARES

    The validity of the shares offered hereby is being passed on for the Fund by
Simpson Thacher & Bartlett, New York, New York, and certain other legal matters
will be passed on for the underwriters by Clifford Chance Rogers & Wells LLP,
New York, New York. Venable, Baetjer and Howard, LLP will opine on certain
matters pertaining to Maryland law. Simpson Thacher & Bartlett and Clifford
Chance Rogers & Wells LLP may rely as to certain matters of Maryland law on the
opinion of Venable, Baetjer and Howard, LLP.

                                       47




<PAGE>
          TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION

<Table>
<S>                                                           <C>
Investment Objectives and Policies..........................    3
Use of Leverage.............................................    4
Investment Restrictions.....................................    7
Management of the Fund......................................    9
Compensation of Directors and Certain Officers..............   10
Investment Advisory and Other Services......................   11
Portfolio Transactions and Brokerage........................   13
Determination of Net Asset Value............................   13
Repurchase of Shares........................................   14
Taxation....................................................   15
Performance Information.....................................   20
Counsel and Independent Accountants.........................   22
Additional Information......................................   22
Statement of Assets and Liabilities.........................   23
Ratings of Investments (Appendix A).........................  A-1
</Table>

                                       48




<PAGE>
                      [THIS PAGE INTENTIONALLY LEFT BLANK]




<PAGE>
                      [THIS PAGE INTENTIONALLY LEFT BLANK]










<PAGE>

==============================================================================


                                            SHARES


                                 COHEN & STEERS
                           --------------------------
                           QUALITY INCOME REALTY FUND

                                 COMMON SHARES

                               ------------------
                                   PROSPECTUS
                               ------------------

                              MERRILL LYNCH & CO.
                           A.G. EDWARDS & SONS, INC.
                             PRUDENTIAL SECURITIES
                                 RAYMOND JAMES
                               CIBC WORLD MARKETS
                           DEUTSCHE BANC ALEX. BROWN
                             LEGG MASON WOOD WALKER
                                  INCORPORATED
                           U.S. BANCORP PIPER JAFFRAY
                              WACHOVIA SECURITIES
                          WELLS FARGO SECURITIES, LLC
                             ROBERT W. BAIRD & CO.
                             FAHNESTOCK & CO. INC.
                          JANNEY MONTGOMERY SCOTT LLC
                         MORGAN KEEGAN & COMPANY, INC.
                              QUICK & REILLY, INC.

                               February   , 2002
==============================================================================









<PAGE>


                 SUBJECT TO COMPLETION, DATED FEBRUARY 25, 2002


    THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION ('STATEMENT OF
ADDITIONAL INFORMATION') IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL
THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION IS EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION IS
NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.


                                 COHEN & STEERS
                           --------------------------
                           QUALITY INCOME REALTY FUND


                                757 THIRD AVENUE
                            NEW YORK, NEW YORK 10017
                                 (800) 437-9912
- --------------------------------------------------------------------------------

                      STATEMENT OF ADDITIONAL INFORMATION
                               February   , 2002

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT SHOULD BE READ
 IN CONJUNCTION WITH THE PROSPECTUS OF COHEN & STEERS INCOME REALTY FUND, INC.,
 DATED FEBRUARY   , 2002, AS SUPPLEMENTED FROM TIME TO TIME (THE 'PROSPECTUS').
  THIS STATEMENT OF ADDITIONAL INFORMATION IS INCORPORATED BY REFERENCE IN ITS
ENTIRETY INTO THE PROSPECTUS. COPIES OF THE STATEMENT OF ADDITIONAL INFORMATION
AND PROSPECTUS MAY BE OBTAINED FREE OF CHARGE BY WRITING OR CALLING THE ADDRESS
                          OR PHONE NUMBER SHOWN ABOVE.

- --------------------------------------------------------------------------------










<PAGE>
                               TABLE OF CONTENTS

<Table>
<Caption>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Investment Objectives and Policies..........................    3
Use of Leverage.............................................    4
Investment Restrictions.....................................    7
Management of the Fund......................................    9
Compensation of Directors and Certain Officers..............   10
Investment Advisory and Other Services......................   11
Portfolio Transactions and Brokerage........................   13
Determination of Net Asset Value............................   13
Repurchase of Shares........................................   14
Taxation....................................................   15
Performance Information.....................................   20
Counsel and Independent Accountants.........................   22
Additional Information......................................   22
Statement of Assets and Liabilities.........................   23
Ratings of Investments (Appendix A).........................  A-1
</Table>

                                       2









<PAGE>

                      STATEMENT OF ADDITIONAL INFORMATION

    Cohen & Steers Quality Income Realty Fund, Inc. (the 'Fund') is a recently
organized, non-diversified, closed-end management investment company organized
as a Maryland corporation on August 22, 2001. Much of the information contained
in this Statement of Additional Information expands on subjects discussed in the
Prospectus. Defined terms used herein have the same meanings as in the
Prospectus. No investment in the shares of the Fund should be made without first
reading the Prospectus.

                       INVESTMENT OBJECTIVES AND POLICIES
               ADDITIONAL INFORMATION REGARDING FUND INVESTMENTS

    The following descriptions supplement the descriptions of the principal
investment objectives, strategies and risks as set forth in the Prospectus.
Except as otherwise provided, the Fund's investment policies are not fundamental
and may be changed by the Board of Directors of the Fund without the approval of
the shareholders; however, the Fund will not change its non-fundamental
investment policies without written notice to shareholders.

INVESTMENTS IN REAL ESTATE COMPANIES AND REAL ESTATE INVESTMENT TRUSTS

    It is our fundamental policy to concentrate our investments in the U.S. real
estate market and not in any other industry. Under normal market conditions, we
will invest at least 90% of our total assets in common stocks, preferred stocks
and other equity securities issued by real estate companies, such as real estate
investment trusts ('REITs').

REAL ESTATE COMPANIES

    For purposes of our investment policies, a real estate company is one that
derives at least 50% of its revenues from the ownership, construction,
financing, management or sale of commercial, industrial, or residential real
estate; or has at least 50% of its assets in such real estate.

REAL ESTATE INVESTMENT TRUSTS

    A REIT is a company dedicated to owning, and usually operating, income
producing real estate, or to financing real estate. REITs can generally be
classified as Equity REITs, Mortgage REITs and Hybrid REITs. An Equity REIT
invests primarily in the fee ownership or leasehold ownership of land and
buildings and derives its income primarily from rental income. An Equity REIT
may also realize capital gains (or losses) by selling real estate properties in
its portfolio that have appreciated (or depreciated) in value. A Mortgage REIT
invests primarily in mortgages on real estate, which may secure construction,
development or long-term loans. A Mortgage REIT generally derives its income
primarily from interest payments on the credit it has extended. A Hybrid REIT
combines the characteristics of both Equity REITs and Mortgage REITs. It is
anticipated, although not required, that under normal market conditions at least
90% of the Fund's investments in REITs will consist of securities issued by
Equity REITs. At least 80% of our total assets will be invested in income
producing equity securities of REITs.

PREFERRED STOCKS

    Preferred stocks pay fixed or floating dividends to investors, and have a
'preference' over common stock in the payment of dividends and the liquidation
of a company's assets. This means that a company must pay dividends on preferred
stock before paying any dividends on its common stock. Preferred stockholders
usually have no right to vote for corporate directors or on other matters. Under
current market conditions, the Investment Manager expects to invest
approximately 67% of our total assets in common shares of real estate companies
and approximately 33% in preferred shares of REITs. The actual percentage of
common and preferred stocks in our

                                       3




<PAGE>
investment portfolio may vary over time based on the Investment Manager's
assessment of market conditions.

LOWER-RATED SECURITIES

    Securities rated non-investment grade (lower than Baa by Moody's Investors
Service Inc. ('Moody's') or lower than BBB by Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc. ('S&P')), are sometimes
referred to as 'high yield' or 'junk' bonds. We may only invest in securities
rated CCC or higher by S&P, or rated Caa or higher by Moody's, or equivalent
unrated securities. The issuers of these securities have a currently
identifiable vulnerability to default and the issues may be in default or there
may be present elements of danger with respect to principal or interest. We may
invest no more than 25% of our total assets in preferred stock or debt
securities rated below investment grade or unrated securities of comparable
quality. This is a fundamental investment policy. We will not invest in
securities which are in default at the time of purchase. For a description of
bond ratings, see Appendix A.

ILLIQUID SECURITIES

    A security is illiquid if, for legal or market reasons, it cannot be
promptly sold (i.e., within seven days) at a price which approximates its fair
value. Although substantially all of the equity securities of real estate
companies in which we intend to invest are traded on a national securities
exchange or in the over-the-counter market, there are no limitations on our
ability to invest in illiquid securities.

CASH RESERVES

    The Fund's cash reserves, held to provide sufficient flexibility to take
advantage of new opportunities for investments and for other cash needs, will be
invested in money market instruments.

    Money market instruments in which the Fund may invest its cash reserves will
generally consist of obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities and such obligations which are subject to
repurchase agreements. Repurchase agreements may be entered into with member
banks of the Federal Reserve System or 'primary dealers' (as designated by the
Federal Reserve Bank of New York) in U.S. Government securities. Other
acceptable money market instruments include commercial paper rated by any
nationally recognized rating agency, such as Moody's or S&P, certificates of
deposit, bankers' acceptances issued by domestic banks having total assets in
excess of one billion dollars, and money market mutual funds.

    In entering into a repurchase agreement for the Fund, the Investment Manager
will evaluate and monitor the creditworthiness of the vendor. In the event that
a vendor should default on its repurchase obligation, the Fund might suffer a
loss to the extent that the proceeds from the sale of the collateral were less
than the repurchase price. If the vendor becomes bankrupt, the Fund might be
delayed, or may incur costs or possible losses of principal and income, in
selling the collateral.

                                USE OF LEVERAGE

    Subject to market conditions and the Fund's receipt of AAA/aaa credit rating
on the Fund Preferred Shares, approximately one to three months after the
completion of the offering of the Common Shares, the Fund intends to offer Fund
Preferred Shares representing approximately 33 1/3% of the Fund's capital
immediately after their issuance. The issuance of Fund Preferred Shares will
leverage the Common Shares. As an alternative to the Fund Preferred Shares, the
Fund may leverage through borrowings. Any borrowings will have seniority over
the Common Shares.

                                       4




<PAGE>
    Under the 1940 Act, the Fund is not permitted to issue preferred shares
unless immediately after the issuance the value of the Fund's total assets is at
least 200% of the liquidation value of the outstanding preferred shares (i.e.,
such liquidation value may not exceed 50% of the Fund's total assets less
liabilities other than borrowing). In addition, the Fund is not permitted to
declare any cash dividend or other distribution on its Common Shares unless, at
the time of such declaration, the value of the Fund's total assets less
liabilities other than borrowing is at least 200% of such liquidation value. If
Fund Preferred Shares are issued, the Fund intends, to the extent possible, to
purchase or redeem Fund Preferred Shares from time to time to the extent
necessary in order to maintain coverage of any Fund Preferred Shares of at least
200%. If the Fund has Fund Preferred Shares outstanding, two of the Fund's
Directors will be elected by the holders of Fund Preferred Shares, voting
separately as a class. The remaining Directors of the Fund will be elected by
holders of Common Shares and Fund Preferred Shares voting together as a single
class. In the event the Fund failed to pay dividends on Fund Preferred Shares
for two years, Fund Preferred Shareholders would be entitled to elect a majority
of the Directors of the Fund. The failure to pay dividends or make distributions
could result in the Fund ceasing to qualify as a regulated investment company
under the Internal Revenue Code of 1986, as amended (the 'Code'), which could
have a material adverse effect on the value of the Common Shares. See
'Description of Shares -- Fund Preferred Shares' in the Prospectus.

    Under the 1940 Act, the Fund generally is not permitted to borrow unless
immediately after the borrowing the value of the Fund's total assets less
liabilities other than the borrowing is at least 300% of the principal amount of
such borrowing (i.e., such principal amount may not exceed 33 1/3% of the Fund's
total assets). In addition, the Fund is not permitted to declare any cash
dividend or other distribution on its Common Shares unless, at the time of such
declaration, the value of the Fund's total assets, less liabilities other than
the borrowings, is at least 300% of such principal amount. If the Fund borrows,
the Fund intends, to the extent possible, to prepay all or a portion of the
principal amount of the borrowing to the extent necessary in order to maintain
the required asset coverage. Failure to maintain certain asset coverage
requirements could result in an event of default and entitle the debt holders to
elect a majority of the board of directors.

    The Fund may be subject to certain restrictions imposed by either guidelines
of one or more rating agencies which may issue ratings for Fund Preferred Shares
or, if the Fund borrows from a lender, by the lender. These guidelines may
impose asset coverage or portfolio composition requirements that are more
stringent than those imposed on the Fund by the 1940 Act. It is not anticipated
that these covenants or guidelines will impede the Investment Manager from
managing the Fund's portfolio in accordance with the Fund's investment
objectives and policies. In addition to other considerations, to the extent that
the Fund believes that the covenants and guidelines required by the rating
agencies would impede its ability to meet its investment objectives, or if the
Fund is unable to obtain the rating on the Fund Preferred Shares (expected to be
AAA/aaa), the Fund will not issue the Fund Preferred Shares.

    During the time in which the Fund is utilizing leverage, the fees paid to
the Investment Manager for investment advisory and management services will be
higher than if the Fund did not utilize leverage because the fees paid will be
calculated based on the Fund's managed assets. Only the Fund's Common
Shareholders bear the cost of the Fund's fees and expenses.

    The Fund may also borrow money as a temporary measure for extraordinary or
emergency purposes, including the payment of dividends and the settlement of
securities transactions which otherwise might require untimely dispositions of
Fund securities.

LEVERAGE RISK

    Utilization of leverage is a speculative investment technique and involves
certain risks to the holders of Common Shares. These include the possibility of
higher volatility of the net asset value of the Common Shares and potentially
more volatility in the market value of the Common Shares. So long as the Fund is
able to realize a higher net return on its investment portfolio than the then
current cost of any leverage together with other related expenses, the effect of
the leverage will be to cause holders of Common Shares to realize a higher
current net investment income than if the

                                       5




<PAGE>
Fund were not so leveraged. On the other hand, to the extent that the then
current cost of any leverage, together with other related expenses, approaches
the net return on the Fund's investment portfolio, the benefit of leverage to
holders of Common Shares will be reduced, and if the then current cost of any
leverage were to exceed the net return on the Fund's portfolio, the Fund's
leveraged capital structure would result in a lower rate of return to Common
Shareholders than if the Fund were not so leveraged.

    Any decline in the net asset value of the Fund's investments will be borne
entirely by Common Shareholders. Therefore, if the market value of the Fund's
portfolio declines, the leverage will result in a greater decrease in net asset
value to Common Shareholders than if the Fund were not leveraged. Such greater
net asset value decrease will also tend to cause a greater decline in the market
price for the Common Shares. To the extent that the Fund is required or elects
to redeem any Fund Preferred Shares or prepay any borrowings, the Fund may need
to liquidate investments to fund such redemptions or prepayments. Liquidation at
times of adverse economic conditions may result in capital loss and reduce
returns to Common Shareholders.

    In addition, such redemption or prepayment likely would result in the Fund
seeking to terminate early all or a portion of any swap or cap transaction.
Early termination of the swap could result in a termination payment by or to the
Fund. Early termination of a cap could result in a termination payment to the
Fund.

    Unless and until the borrowings for leverage or Fund Preferred Shares are
issued, the Common Shares will not be leveraged and the disclosure regarding
these strategies will not apply.

INTEREST RATE TRANSACTIONS

    In order to reduce the interest rate risk inherent in our underlying
investments and capital structure, we may enter into interest rate swap or cap
transactions. Interest rate swaps involve the Fund's agreement with the swap
counterparty to pay a fixed rate payment in exchange for the counterparty paying
the Fund a variable rate payment that is intended to approximate the Fund's
variable rate payment obligation on the Fund Preferred Shares or any variable
rate borrowing. The payment obligation would be based on the notional amount of
the swap. We may use an interest rate cap, which would require us to pay a
premium to the cap counterparty and would entitle us, to the extent that a
specified variable rate index exceeds a predetermined fixed rate, to receive
from the counterparty payment of the difference based on the notional amount. We
would use interest rate swaps or caps only with the intent to reduce or
eliminate the risk that an increase in short-term interest rates could have on
the performance of the Fund's Common Shares as a result of leverage.

    The use of interest rate swaps and caps is a highly specialized activity
that involves investment techniques and risks different from those associated
with ordinary portfolio security transactions. Depending on the state of
interest rates in general, our use of interest rate swaps or caps could enhance
or harm the overall performance on the Fund's Common Shares. To the extent there
is a decline in interest rates, the value of the interest rate swap or cap could
decline, and could result in a decline in the net asset value of the Common
Shares. In addition, if short-term interest rates are lower than our rate of
payment on the interest rate swap, this will reduce the performance of the
Fund's Common Shares. If, on the other hand, short-term interest rates are
higher than our rate of payment on the interest rate swap, this will enhance the
performance of the Fund's Common Shares. Buying interest rate caps could enhance
the performance of the Fund's Common Shares by providing a ceiling on leverage
expenses. Buying interest rate caps could also decrease the net income of the
Fund's Common Shares in the event that the premium paid by the Fund to the
counterparty exceeds the additional amount the Fund would have been required to
pay had it not entered into the cap agreement. The Fund has no current intention
of selling an interest rate swap or cap. We would not enter into interest rate
swap or cap transactions in an aggregate notional amount that exceeds the
outstanding amount of the Fund's leverage.

    Interest rate swaps and caps do not involve the delivery of securities or
other underlying assets or principal. Accordingly, the risk of loss with respect
to interest rate swaps is limited to the

                                       6




<PAGE>
net amount of interest payments that the Fund is contractually obligated to
make. If the counter-party defaults, the Fund would not be able to use the
anticipated net receipts under the swap or cap to offset the dividend payments
on the Fund Preferred Shares or rate of interest on borrowings. Depending on
whether the Fund would be entitled to receive net payments from the counterparty
on the swap or cap, which in turn would depend on the general state of
short-term interest rates at that point in time, such default could negatively
impact the performance of the Fund's Common Shares. Although this will not
guarantee that the counter-party does not default, the Fund will not enter into
an interest rate swap or cap transaction with any counter-party that the
Investment Manager believes does not have the financial resources to honor its
obligation under the interest rate swap or cap transaction. Further, the
Investment Manager will continually monitor the financial stability of a
counter-party to an interest rate swap or cap transaction in an effort to
proactively protect the Fund's investments. In addition, at the time the
interest rate swap or cap transaction reaches its scheduled termination date,
there is a risk that the Fund will not be able to obtain a replacement
transaction or that the terms of the replacement will not be as favorable as on
the expiring transaction. If this occurs, it could have a negative impact on the
performance of the Fund's Common Shares. The Fund will usually enter into swaps
or caps on a net basis; that is, the two payment streams will be netted out in a
cash settlement on the payment date or dates specified in the instrument, with
the Fund receiving or paying, as the case may be, only the net amount of the two
payments.

    The Fund may choose or be required to redeem some or all of the Fund
Preferred Shares or prepay any borrowings. This redemption would likely result
in the Fund seeking to terminate early all or a portion of any swap or cap
transaction. Such early termination of a swap could result in termination
payment by or to the Fund. An early termination of a cap could result in a
termination payment to the Fund.

                            INVESTMENT RESTRICTIONS

    The investment objectives and the general investment policies and investment
techniques of the Fund are described in the Prospectus. The Fund has also
adopted certain investment restrictions limiting the following activities except
as specifically authorized:

    The Fund may not:

         1. Issue senior securities (including borrowing money for other than
    temporary purposes) except in conformity with the limits set forth in the
    1940 Act; or pledge its assets other than to secure such issuances or
    borrowings or in connection with permitted investment strategies;
    notwithstanding the foregoing, the Fund may borrow up to an additional 5% of
    its total assets for temporary purposes;

         2. Act as an underwriter of securities issued by other persons, except
    insofar as the Fund may be deemed an underwriter in connection with the
    disposition of securities;

         3. Purchase or sell real estate, mortgages on real estate or
    commodities, except that the Fund may invest in securities of companies that
    deal in real estate or are engaged in the real estate business, including
    REITs, and securities secured by real estate or interests therein and the
    Fund may hold and sell real estate or mortgages on real estate acquired
    through default, liquidation, or other distributions of an interest in real
    estate as a result of the Fund's ownership of such securities;

         4. Purchase or sell commodities or commodity futures contracts, except
    that the Fund may invest in financial futures contracts, options thereon and
    such similar instruments;

         5. Make loans to other persons except through the lending of securities
    held by it (but not to exceed a value of one-third of total assets), through
    the use of repurchase agreements, and by the purchase of debt securities;

         6. Purchase preferred stock and debt securities rated below investment
    grade and unrated securities of comparable quality, if, as a result, more
    than 20% of the Fund's total assets would then be invested in such
    securities;

                                       7




<PAGE>
         7. Acquire or retain securities of any investment company, except that
    the Fund may (a) acquire securities of investment companies up to the limits
    permitted by Section 12(d)(1) of the 1940 Act, and (b) acquire securities of
    any investment company as part of a merger, consolidation or similar
    transaction;

         8. Invest in puts, calls, straddles, spreads or any combination
    thereof;

         9. Enter into short sales;

        10. Invest in the securities of a non-U.S. issuer;

        11. Invest in oil, gas or other mineral exploration programs,
    development programs or leases, except that the Fund may purchase securities
    of companies engaging in whole or in part in such activities;

        12. Pledge, mortgage or hypothecate its assets except in connection with
    permitted borrowings; or

        13. Purchase securities on margin, except short-term credits as are
    necessary for the purchase and sale of securities.

    The investment restrictions numbered 1 through 7 in this Statement of
Additional Information have been adopted as fundamental policies of the Fund.
Under the 1940 Act, a fundamental policy may not be changed without the vote of
a majority of the outstanding voting securities of the Fund, as defined under
the 1940 Act. 'Majority of the outstanding voting securities' means the lesser
of (1) 67% or more of the shares present at a meeting of shareholders of the
Fund, if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (2) more than 50% of the outstanding shares
of the Fund. Investment restrictions numbered 8 through 13 above are
non-fundamental and may be changed at any time by vote of a majority of the
Board of Directors.

                                       8









<PAGE>

                             MANAGEMENT OF THE FUND

    The overall management of the business and affairs of the Fund is vested
with the Board of Directors. The Directors approve all significant agreements
between the Fund and persons or companies furnishing services to it, including
the Fund's agreements with its Investment Manager, administrator, custodian and
transfer agent. The management of the Fund's day-to-day operations is delegated
to its officers, the Investment Manager and the Fund's administrator, subject
always to the investment objectives and policies of the Fund and to the general
supervision of the Directors. As of February   , 2002, the Directors and
officers as a group beneficially owned, directly or indirectly, less than 1% of
the outstanding shares of the Fund.

    The Directors and officers of the Fund and their principal occupations
during the past five years are set forth below. Each such Director and officer
is also a director or officer of Cohen & Steers Advantage Income Realty Fund,
Inc. and Cohen & Steers Total Return Realty Fund, Inc., both of which are
closed-end investment companies advised by the Investment Manager, and Cohen &
Steers Equity Income Fund, Inc., Cohen & Steers Institutional Realty Shares,
Inc., Cohen & Steers Realty Shares, Inc. and Cohen & Steers Special Equity Fund,
Inc., which are open-end investment companies advised by the Investment Manager.
An asterisk (*) has been placed next to the name of each Director who is an
'interested person' of the Fund, as such term is defined in the 1940 Act, by
virtue of such person's affiliation with the Fund or the Investment Manager.

<Table>
<Caption>
                                    POSITION(S)
                                     HELD WITH
    NAME, ADDRESS AND AGE              FUND          PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS
    ---------------------              ----          -----------------------------------------------
<S>                             <C>                  <C>
Robert H. Steers*.............  Director, Chairman   Chairman of Cohen & Steers Capital
757 Third Avenue                and Secretary          Management, Inc., the Fund's Investment
New York, New York                                     Manager.
Age: 48

Martin Cohen*'D' .............  Director, President  President of Cohen & Steers Capital
757 Third Avenue                and Treasurer          Management, Inc., the Fund' Investment
New York, New York                                     Manager.
Age: 52

Gregory C. Clark .............  Director             Private Investor. Prior thereto, President
376 Mountain Laurel Drive                              of Wellspring Management Group (investment
Aspen, Colorado                                        advisory firm).
Age: 54

Bonnie Cohen'D' ..............  Director             Consultant. Prior thereto, Undersecretary
1824 Phelps Place, N.W.                                of State, United States Department of
Washington, D.C.                                       State.
Age: 59

George Grossman ..............  Director             Attorney-at-law
17 Elm Place
Rye, New York
Age: 47

Richard J. Norman ............  Director             Private Investor. Prior thereto,
7520 Hackamore Drive                                   Investment Representative of Morgan
Potomac, Maryland                                      Stanley Dean Witter.
Age: 58

Willard H. Smith Jr. .........  Director             Board member of Essex Property Trust,
5208 Renaissance Avenue                                Inc., Highwoods Properties, Inc., Realty
San Diego, California                                  Income Corporation and Willis Lease
Age: 64                                                Finance Corporation. Managing director
                                                       at Merrill Lynch & Co., Equity Capital
                                                       Markets Division from 1983 to 1995.
</Table>

                                                  (table continued on next page)

                                       9




<PAGE>
(table continued from previous page)


<Table>
<Caption>
                                    POSITION(S)
                                     HELD WITH
    NAME, ADDRESS AND AGE              FUND          PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS
    ---------------------              ----          -----------------------------------------------
<S>                             <C>                  <C>
Greg E. Brooks ...............  Vice President       Senior Vice President of Cohen & Steers Capital
757 Third Avenue                                       Management, Inc., the Fund's Investment
New York, New York                                     Manager since 2002 and a Vice President since
Age: 35                                                2000. Prior thereto, he was an investment
                                                       analyst with another real estate securities
                                                       investment manager.

Adam M. Derechin .............  Vice President and   Senior Vice President of Cohen & Steers Capital
757 Third Avenue                Assistant Treasurer    Management, Inc., the Fund's Investment
New York, New York                                     Manager, since 1998, and prior to that Vice
Age: 37                                                President of Cohen & Steers Capital
                                                       Management, Inc.

Lawrence B. Stoller ..........  Assistant Secretary  Senior Vice President and General Counsel,
757 Third Avenue                                       Cohen & Steers Capital Management, Inc., the
New York, New York                                     Fund's Investment Manager, since 1999. Prior
Age: 38                                                to that, Associate General Counsel, Neuberger
                                                       Berman Management Inc. (money manager); and
                                                       Assistant General Counsel, The Dreyfus
                                                       Corporation (money manager).
</Table>


- ---------

'D'  Martin Cohen and Bonnie Cohen are unrelated.

                 COMPENSATION OF DIRECTORS AND CERTAIN OFFICERS


    The following table sets forth estimated information regarding compensation
expected to be paid to Directors by the Fund for the current fiscal year ending
December 31, 2002 and the aggregate compensation paid by the fund complex of
which the Fund is a part for the fiscal year ended December 31, 2001. Officers
of the Fund and Directors who are interested persons of the Fund do not receive
any compensation from the Fund or any other fund in the fund complex which is a
U.S. registered investment company. Each of the other Directors is paid an
annual retainer of $5,500, and a fee of $500 for each meeting attended and is
reimbursed for the expenses of attendance at such meetings. In the column headed
`Total Compensation From Fund Complex Paid to Directors,' the compensation paid
to each Director represents the aggregate amount paid to the Director by the
Fund and the six other funds that each Director serves in the fund complex. The
Directors do not receive any pension or retirement benefits from the fund
complex.


<Table>
<Caption>
                                                                                  TOTAL
                                                               AGGREGATE      COMPENSATION
                                                              COMPENSATION   COMPLEX PAID TO
         NAME OF PERSON, POSITION OF FUND DIRECTORS            FROM FUND        DIRECTORS
         ------------------------------------------            ---------        ---------
<S>                                                           <C>            <C>
Gregory C. Clark*, Director.................................     $7,500          $45,000
Bonnie Cohen*, Director.....................................     $7,500          $11,250***
Martin Cohen**, Director and President......................          0                0
George Grossman*, Director..................................     $7,500          $45,000
Richard J. Norman, Director.................................     $7,500          $11,250***
Willard H. Smith Jr.*, Director.............................     $7,500          $45,000
Robert H. Steers**, Director and Chairman...................          0                0
</Table>

- ---------

  * Member of the Audit Committee.

 ** 'Interested person,' as defined in the 1940 Act, of the Fund because of the
    affiliation with Cohen & Steers Capital Management, Inc., the Fund's
    Investment Manager.

*** Ms. Cohen and Mr. Norman were elected as Directors of the fund complex on
    December 3, 2001.

                                       10









<PAGE>

                     INVESTMENT ADVISORY AND OTHER SERVICES

THE INVESTMENT MANAGER

    Cohen & Steers Capital Management, Inc., with offices located at 757 Third
Avenue, New York, New York 10017, is the Investment Manager to the Fund. The
Investment Manager, a registered investment adviser, was formed in 1986 and
specializes in the management of real estate securities portfolios. Its current
clients include pension plans of leading corporations, endowment funds and
mutual funds, including Cohen & Steers Advantage Income Realty Fund, Inc. and
Cohen & Steers Total Return Realty Fund, Inc., both of which are closed-end
investment companies and Cohen & Steers Equity Income Fund, Inc., Cohen & Steers
Institutional Realty Shares, Inc., Cohen & Steers Realty Shares, Inc. and Cohen
& Steers Special Equity Fund, Inc., which are open-end investment companies.
Cohen & Steers Realty Shares, Inc. is currently the largest registered
investment company that invests primarily in real estate securities. Mr. Cohen
and Mr. Steers are 'controlling persons' of the Investment Manager on the basis
of their ownership of the Investment Manager's stock.

    Pursuant to the Investment Management Agreement, the Investment Manager
furnishes a continuous investment program for the Fund's portfolio, makes the
day-to-day investment decisions for the Fund, executes the purchase and sale
orders for the portfolio transactions of the Fund and generally manages the
Fund's investments in accordance with the stated policies of the Fund, subject
to the general supervision of the Board of Directors of the Fund.

    Under the Investment Management Agreement, the Fund pays the Investment
Manager a monthly management fee computed at the annual rate of 0.85% of the
average daily value of the managed assets (which equals the net asset value of
the Common Shares, including the liquidation preference on any Preferred Shares,
plus the principal amount on any borrowings) of the Fund.

    The Investment Manager also provides the Fund with such personnel
as the Fund may from time to time request for the performance of clerical,
accounting and other office services, such as coordinating matters with the
sub-administrator, the transfer agent and the custodian. The personnel rendering
these services, who may act as officers of the Fund, may be employees of the
Investment Manager or its affiliates. These services are provided at no
additional cost to the Fund. The Fund does not pay any additional amounts for
services performed by officers of the Investment Manager or its affiliates.

ADMINISTRATIVE SERVICES

    Pursuant to an Administration Agreement, the Investment Manager also
performs certain administrative and accounting functions for the Fund, including
(i) providing office space, telephone, office equipment and supplies for the
Fund; (ii) paying compensation of the Fund's officers for services rendered as
such; (iii) authorizing expenditures and approving bills for payment on behalf
of the Fund; (iv) supervising preparation of the periodic updating of the Fund's
registration statement, including prospectus and statement of additional
information, for the purpose of filings with the Securities and Exchange
Commission and state securities administrators and monitoring and maintaining
the effectiveness of such filings, as appropriate; (v) supervising preparation
of periodic reports to the Fund's shareholders and filing of these reports with
the Securities and Exchange Commission, Forms N-SAR filed with the Securities
and Exchange Commission, notices of dividends, capital gains distributions and
tax credits, and attending to routine correspondence and other communications
with individual shareholders; (vi) supervising the daily pricing of the Fund's
investment portfolio and the publication of the net asset value of the Fund's
shares, earnings reports and other financial data; (vii) monitoring
relationships with organizations providing services to the Company, including
the Custodian, Transfer Agent and printers; (viii) providing trading desk
facilities for the Fund; (ix) supervising compliance by the Fund with
record-keeping requirements under the Act and regulations thereunder,
maintaining books and records for the Fund (other than those maintained by the
Custodian and Transfer Agent) and preparing and filing of tax reports other than
the Fund's income tax returns; and (x) providing executive, clerical and
secretarial help needed to carry out these responsibilities. Under

                                       11




<PAGE>
the Administration Agreement, the Fund pays the Investment Manager an amount
equal to, on an annual basis, 0.02% of the Fund's managed assets.

    In accordance with the terms of the Administration Agreement and with the
approval of the Fund's Board of Directors, the Investment Manager has caused the
Fund to retain State Street Bank and Trust Company ('State Street Bank') as
sub-administrator under a fund accounting and administration agreement (the
'Sub-Administration Agreement'). Under the Sub-Administration Agreement, State
Street Bank has assumed responsibility for performing certain of the foregoing
administrative functions, including (i) determining the Fund's net asset value
and preparing these figures for publication; (ii) maintaining certain of the
Fund's books and records that are not maintained by the Investment Manager,
custodian or transfer agent; (iii) preparing financial information for the
Fund's income tax returns, proxy statements, shareholders reports, and SEC
filings; and (iv) responding to shareholder inquiries.

    Under the terms of the Sub-Administration Agreement, the Fund pays State
Street Bank a monthly sub-administration fee. The sub-administration fee paid by
the Fund to State Street Bank is computed on the basis of the net assets in the
Fund at an annual rate equal to 0.040% of the first $200 million in assets,
0.030% of the next $200 million, and 0.015% of assets in excess of $400 million,
with a minimum fee of $120,000. The aggregate fee paid by the Fund and the other
funds advised by the Investment Manager to State Street Bank is computed by
multiplying the total number of funds by each break point in the above schedule
in order to determine the aggregate break points to be used in calculating the
total fee paid by the Cohen & Steers family of funds (i.e., 6 funds at $200
million or $1.2 billion at 0.040%, etc.). The Fund is then responsible for its
pro rata amount of the aggregate administration fee.

    The Investment Manager remains responsible for monitoring and overseeing the
performance by State Street Bank, and EquiServe Trust Company, NA, as custodian
and transfer and disbursing agent, of their obligations to the Fund under their
respective agreements with the Fund, subject to the overall authority of the
Fund's Board of Directors.

CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT

    State Street Bank, which has its principal business office at 225 Franklin
Street, Boston, MA 02110, has been retained to act as custodian of the Fund's
investments and EquiServe Trust Company, NA, which has its principal business
office at 150 Royall Street, Canton, MA 02021, as the Fund's transfer and
dividend disbursing agent. Neither State Street nor EquiServe has any part in
deciding the Fund's investment policies or which securities are to be purchased
or sold for the Fund's portfolio.

CODE OF ETHICS

    The Fund, Investment Manager and the Fund's principal underwriters have
adopted codes of ethics in compliance with Rule 17j-1 under the 1940 Act. The
codes of ethics of the Fund and the Investment Manager, among other things,
prohibit management personnel from investing in REITs and real estate
securities, prohibit purchases in an initial public offering and require
pre-approval for investments in private placements. The Fund's Independent
Directors are prohibited from purchasing or selling any security if they knew or
reasonably should have known at the time of the transaction that, within the
most recent 15 days, the security is being or has been considered for purchase
or sale by the Fund, or is being purchased or sold by the Fund. The codes of
ethics of the principal underwriters permit personnel of these firms that are
subject to the codes to invest in securities, including securities that may be
purchased or held by the Fund.

PRIVACY POLICY

    The Fund is committed to maintaining the privacy of its shareholders and to
safeguarding their nonpublic personal information. The following information is
provided to help you understand what personal information the Fund collects, how
we protect that information, and why in certain cases we may share this
information with others.

                                       12




<PAGE>
    The Fund does not receive any nonpublic personal information relating to the
shareholders who purchase shares through an intermediary that acts as the record
owner of the shares. In the case of shareholders who are record owners of the
Fund, we receive nonpublic personal information on account applications or other
forms. With respect to these shareholders, the Fund also has access to specific
information regarding their transactions in the Fund.

    The Fund does not disclose any nonpublic personal information about its
shareholders or former shareholders to anyone, except as permitted by law or as
is necessary to service shareholder accounts. The Fund restricts access to
nonpublic personal information about its shareholders to Cohen & Steers
employees with a legitimate business need for the information.

                      PORTFOLIO TRANSACTIONS AND BROKERAGE

    Subject to the supervision of the Directors, decisions to buy and sell
securities for the Fund and negotiation of its brokerage commission rates are
made by the Investment Manager. Transactions on U.S. stock exchanges involve the
payment by the Fund of negotiated brokerage commissions. There is generally no
stated commission in the case of securities traded in the over-the-counter
market but the price paid by the Fund usually includes an undisclosed dealer
commission or mark-up. In certain instances, the Fund may make purchases of
underwritten issues at prices which include underwriting fees.

    In selecting a broker to execute each particular transaction, the Investment
Manager will take the following into consideration: the best net price
available; the reliability, integrity and financial condition of the broker; the
size and difficulty in executing the order; and the value of the expected
contribution of the broker to the investment performance of the Fund on a
continuing basis. Accordingly, the cost of the brokerage commissions to the Fund
in any transaction may be greater than that available from other brokers if the
difference is reasonably justified by other aspects of the portfolio execution
services offered. Subject to such policies and procedures as the Directors may
determine, the Investment Manager shall not be deemed to have acted unlawfully
or to have breached any duty solely by reason of its having caused the Fund to
pay a broker that provides research services to the Investment Manager an amount
of commission for effecting a portfolio investment transaction in excess of the
amount of commission another broker would have charged for effecting that
transaction, if the Investment Manager determines in good faith that such amount
of commission was reasonable in relation to the value of the research service
provided by such broker viewed in terms of either that particular transaction or
the Investment Manager's ongoing responsibilities with respect to the Fund.
Research and investment information is provided by these and other brokers at no
cost to the Investment Manager and is available for the benefit of other
accounts advised by the Investment Manager and its affiliates, and not all of
the information will be used in connection with the Fund. While this information
may be useful in varying degrees and may tend to reduce the Investment Manager's
expenses, it is not possible to estimate its value and in the opinion of the
Investment Manager it does not reduce the Investment Manager's expenses in a
determinable amount. The extent to which the Investment Manager makes use of
statistical, research and other services furnished by brokers is considered by
the Investment Manager in the allocation of brokerage business but there is no
formula by which such business is allocated. The Investment Manager does so in
accordance with its judgment of the best interests of the Fund and its
shareholders. The Investment Manager may also take into account payments made by
brokers effecting transactions for the Fund to other persons on behalf of the
Fund for services provided to it for which it would be obligated to pay (such as
custodial and professional fees). In addition, consistent with the Conduct Rules
of the National Association of Securities Dealers, Inc., and subject to seeking
best price and execution, the Investment Manager may consider sales of shares of
the Fund as a factor in the selection of brokers and dealers to enter into
portfolio transactions with the Fund.

                        DETERMINATION OF NET ASSET VALUE

    The Fund will determine the net asset value of its shares daily, as of the
close of trading on the New York Stock Exchange (currently 4:00 p.m. New York
time). Net asset value is computed

                                       13




<PAGE>
by dividing the value of all assets of the Fund (including accrued interest and
dividends), less all liabilities (including accrued expenses and dividends
declared but unpaid), by the total number of shares outstanding. Any swap
transaction that the Fund enters into may, depending on the applicable interest
rate environment, have a positive or negative value for purposes of calculating
net asset value. Any cap transaction that the Fund enters into may, depending on
the applicable interest rate environment, have no value or a positive value. In
addition, accrued payments to the Fund under such transactions will be assets of
the Fund and accrued payments by the Fund will be liabilities of the Fund.

    For purposes of determining the net asset value of the Fund, readily
marketable portfolio securities listed on the New York Stock Exchange are
valued, except as indicated below, at the last sale price reflected on the
consolidated tape at the close of the New York Stock Exchange on the business
day as of which such value is being determined. If there has been no sale on
such day, the securities are valued at the mean of the closing bid and asked
prices on such day. If no bid or asked prices are quoted on such day, then the
security is valued by such method as the Board of Directors shall determine in
good faith to reflect its fair market value. Readily marketable securities not
listed on the New York Stock Exchange but listed on other domestic or foreign
securities exchanges or admitted to trading on the National Association of
Securities Dealers Automated Quotations, Inc. ('NASDAQ') National List are
valued in a like manner. Portfolio securities traded on more than one securities
exchange are valued at the last sale price on the business day as of which such
value is being determined as reflected on the tape at the close of the exchange
representing the principal market for such securities.

    Readily marketable securities traded in the over-the-counter market,
including listed securities whose primary market is believed by the Investment
Manager to be over-the-counter, but excluding securities admitted to trading on
the NASDAQ National List, are valued at the mean of the current bid and asked
prices as reported by NASDAQ or, in the case of securities not quoted by NASDAQ,
the National Quotation Bureau or such other comparable source as the Directors
deem appropriate to reflect their fair market value. However, certain
fixed-income securities may be valued on the basis of prices provided by a
pricing service when such prices are believed by the Board of Directors to
reflect the fair market value of such securities. The prices provided by a
pricing service take into account institutional size trading in similar groups
of securities and any developments related to specific securities. Where
securities are traded on more than one exchange and also over-the-counter, the
securities will generally be valued using the quotations the Board of Directors
believes reflect most closely the value of such securities.

                              REPURCHASE OF SHARES

    The Fund is a closed-end investment company and as such its shareholders
will not have the right to cause the Fund to redeem their shares. Instead the
Fund's shares will trade in the open market at a price that will be a function
of several factors, including dividend levels (which are in turn affected by
expenses), net asset value, call protection, price, dividend stability, relative
demand for and supply of such shares in the market, market and economic
conditions and other factors. Because shares of a closed-end investment company
may frequently trade at prices lower than net asset value, the Fund's Board of
Directors may consider action that might be taken to reduce or eliminate any
material discount from net asset value in respect of shares, which may include
the repurchase of such shares in the open market, private transactions, the
making of a tender offer for such shares at net asset value, or the conversion
of the Fund to an open-end investment company. The Board of Directors may not
decide to take any of these actions. During the pendency of a tender offer, the
Fund will publish how Common Shareholders may readily ascertain the net asset
value. In addition, there can be no assurance that share repurchases or tender
offers, if undertaken, will reduce market discount.

    Subject to its investment limitations, the Fund may use the accumulation of
cash to finance repurchase of shares or to make a tender offer. Interest on any
borrowings to finance share repurchase transactions or the accumulation of cash
by the Fund in anticipation of share repurchases or tenders will reduce the
Fund's income. Any share repurchase, tender offer or

                                       14




<PAGE>
borrowing that might be approved by the Board of Directors would have to comply
with the Securities Exchange Act of 1934 and the 1940 Act and the rules and
regulations under each of those Acts.

    Although the decision to take action in response to a discount from net
asset value will be made by the Board of Directors at the time it considers the
issue, it is the Board's present policy, which may be changed by the Board, not
to authorize repurchases of Common Shares or a tender offer for such shares if
(1) such transactions, if consummated, would (a) result in delisting of the
common shares from the New York Stock Exchange, or (b) impair the Fund's status
as a regulated investment company under the Code (which would make the Fund a
taxable entity, causing its income to be taxed at the corporate level in
addition to the taxation of shareholders who receive dividends from the Fund) or
as a registered closed-end investment company under the 1940 Act; (2) the Fund
would not be able to liquidate portfolio securities in an orderly manner and
consistent with the Fund's investment objectives and policies in order to
repurchase shares; or (3) there is, in the Board's judgment, any (a) material
legal action or proceeding instituted or threatened challenging such
transactions or otherwise materially adversely affecting the Fund, (b) general
suspension of or limitation on prices for trading securities on the New York
Stock Exchange, (c) declaration of a banking moratorium by Federal or state
authorities or a suspension of payment by U.S. banks in which the Fund invests,
(d) material limitation affecting the Fund or the issuers of its portfolio
securities by Federal or state authorities on the extension of credit by
institutions or on the exchange of foreign currency, (e) commencement of armed
hostilities or other international or national calamity directly or indirectly
involving the United States, or (f) other event or condition which would have a
material adverse effect (including any adverse tax effect) on the Fund or its
shareholders if shares were repurchased. The Board may in the future modify
these conditions in light of experience.

    The repurchase by the Fund of its shares at prices below net asset value
will result in an increase in the net asset value of those shares that remain
outstanding. However, there can be no assurance that share repurchases or
tenders at or below net asset value will result in the Fund's shares trading at
a price equal to their net asset value. Nevertheless, the fact that the shares
may be the subject of repurchase or tender offers at net asset value from time
to time, or that the Fund may be converted to an open-end investment company,
may reduce any spread between market price and net asset value that might
otherwise exist.

    In addition, a purchase by the Fund of its Common Shares will decrease the
Fund's total assets which would likely have the effect of increasing the Fund's
expense ratio. Any purchase by the Fund of its Common Shares at a time when
preferred shares are outstanding will increase the leverage applicable to the
outstanding common shares then remaining.

    Before deciding whether to take any action, the Fund's Board of Directors
would likely consider all relevant factors, including the extent and duration of
the discount, the liquidity of the Fund's portfolio, the impact of any action on
the Fund or its shareholders and market considerations. Based on the
considerations, even if the Fund's shares should trade at a discount, the Board
may determine that, in the interest of the Fund and its shareholders, no action
should be taken.

                                    TAXATION

    Set forth below is a discussion of certain U.S. federal income tax issues
concerning the Fund and the purchase, ownership and disposition of Fund shares.
This discussion does not purport to be complete or to deal with all aspects of
federal income taxation that may be relevant to shareholders in light of their
particular circumstances. This discussion is based upon present provisions of
the Code, the regulations promulgated thereunder, and judicial and
administrative ruling authorities, all of which are subject to change, which
change may be retroactive. Prospective investors should consult their own tax
advisers with regard to the federal tax consequences of the purchase, ownership,
or disposition of Fund shares, as well as the tax consequences arising under the
laws of any state, foreign country, or other taxing jurisdiction.

                                       15




<PAGE>
TAXATION OF THE FUND

    The Fund intends to elect to be treated as, and to qualify annually as, a
regulated investment company under the Code.

    To qualify for the favorable U.S. federal income tax treatment generally
accorded to regulated investment companies, the Fund must, among other things,
(a) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock, securities or foreign currencies or other income
derived with respect to its business of investing in such stock, securities or
currencies; (b) diversify its holdings so that, at end of each quarter of the
taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash and cash items (including receivables), U.S. Government
securities, the securities of other regulated investment companies and other
securities, with such other securities of any one issuer limited for the
purposes of this calculation to an amount not greater than 5% of the value of
the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities (other than U.S. Government securities or
the securities of other regulated investment companies) of a single issuer, or
two or more issuers which the Fund controls and are engaged in the same, similar
or related trades or businesses; and (c) distribute at least 90% of the sum of
its investment company taxable income (as that term is defined in the Code, but
without regard to the deduction for dividends paid) and net tax-exempt interest
each taxable year.

    As a regulated investment company, the Fund generally will not be subject to
U.S. federal income tax on its investment company taxable income (which
includes, among other items, dividends, interest and net short-term capital gain
in excess of net long-term capital loss) and net capital gain (the excess of net
long-term capital gain over net short-term capital loss), if any, that it
distributes to shareholders. The Fund intends to distribute to its shareholders,
at least annually, substantially all of its investment company taxable income
and net capital gain. Amounts not distributed on a timely basis in accordance
with a calendar year distribution requirement are subject to a nondeductible 4%
excise tax. To prevent imposition of the excise tax, the Fund must distribute
during each calendar year an amount equal to the sum of (1) at least 98% of its
ordinary income (not taking into account any capital gains or losses) for the
calendar year, (2) at least 98% of its capital gains in excess of its capital
losses (adjusted for certain ordinary losses) for the one-year period ending on
October 31 of the calendar year, and (3) any ordinary income and capital gains
for previous years that was not distributed during those years. A distribution
will be treated as paid on December 31 of the current calendar year if it is
declared by the Fund in October, November or December with a record date in such
a month and paid by the Fund during January of the following calendar year. Such
distributions will be taxable to shareholders in the calendar year in which the
distributions are declared, rather than the calendar year in which the
distributions are received. To prevent application of the excise tax, the Fund
intends to make its distributions in accordance with the calendar year
distribution requirement.

    If the Fund failed to qualify as a regulated investment company or failed to
satisfy the 90% distribution requirement in any taxable year, the Fund would be
taxed as an ordinary corporation on its taxable income (even if such income were
distributed to its shareholders) and all distributions out of earnings and
profits (including distributions of net capital gain) would be taxed to
shareholders as ordinary income.

DISTRIBUTIONS

    Dividends paid out of the Fund's current and accumulated earnings and
profits will, except in the case of capital gain dividends described below, be
taxable to a U.S. shareholder as ordinary income to the extent of the Fund's
earnings and profits, whether paid in cash or reinvested in additional shares.
Although such dividends generally will not qualify for the dividends received
deduction available to corporations under Section 243 of the Code, if a portion
of the Fund's income consists of qualifying dividends paid by U.S. corporations
(other than REITs), a portion of the dividends paid by the Fund to corporate
shareholders may be eligible for the corporate

                                       16




<PAGE>
dividends received deduction. Distributions of net capital gain (the excess of
net long-term capital gain over net short-term capital loss), if any, designated
as capital gain dividends are taxable to a shareholder as long-term capital
gains, regardless of how long the shareholder has held Fund shares. A
distribution of an amount in excess of the Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares.

    The Internal Revenue Service ('IRS') currently requires that a regulated
investment company that has two or more classes of stock allocate to each such
class proportionate amounts of each type of its income (such as ordinary income
and capital gains) based upon the percentage of total dividends paid out of
earnings or profits to each class for the tax year. Accordingly, the Fund
intends each year to allocate capital gain dividends between its Common Shares
and Fund Preferred Shares in proportion to the total dividends paid out of
earnings or profits to each class with respect to such tax year.

    Distributions will be treated in the manner described above regardless of
whether such distributions are paid in cash or invested in additional shares of
the Fund.

    The Fund may elect to retain its net capital gain or a portion thereof for
investment and be taxed at corporate rates on the amount retained. In such case,
it may designate the retained amount as undistributed capital gains in a notice
to its shareholders who will be treated as if each received a distribution of
his pro rata share of such gain, with the result that each shareholder will
(i) be required to report his pro rata share of such gain on his tax return as
long-term capital gain, (ii) receive a refundable tax credit for his pro rata
share of tax paid by the Fund on the gain and (iii) increase the tax basis for
his shares by an amount equal to the deemed distribution less the tax credit.

    Shareholders will be notified annually as to the U.S. federal tax status of
distributions.

SALE OR EXCHANGE OF FUND SHARES

    Upon the sale or other disposition of shares of the Fund which a shareholder
holds as a capital asset, such shareholder may realize a capital gain or loss
which will be long-term or short-term, depending upon the shareholder's holding
period for the shares. Generally, a shareholder's gain or loss will be a
long-term gain or loss if the shares have been held for more than one year.

    Any loss realized on a sale or exchange will be disallowed to the extent the
shares disposed of are replaced (including through reinvestment of dividends)
within a period of 61 days beginning 30 days before and ending 30 days after
disposition of the shares. In such a case, the basis of the shares acquired will
be adjusted to reflect the disallowed loss. Any loss realized by a shareholder
on a disposition of Fund shares held by the shareholder for six months or less
will be treated as a long-term capital loss to the extent of any distributions
of net capital gain received by the shareholder with respect to such shares.

NATURE OF FUND'S INVESTMENTS

    Certain of the Fund's investment practices are subject to special and
complex federal income tax provisions that may, among other things, (i)
disallow, suspend or otherwise limit the allowance of certain losses or
deductions, (ii) convert lower taxed long-term capital gain into higher taxed
short-term capital gain or ordinary income, (iii) convert an ordinary loss or a
deduction into a capital loss (the deductibility of which is more limited), (iv)
cause the Fund to recognize income or gain without a corresponding receipt of
cash, (v) adversely affect the time as to when a purchase or sale of stock or
securities is deemed to occur and (vi) adversely alter the characterization of
certain complex financial transactions. The Fund will monitor its transactions
and may make certain tax elections in order to mitigate the effect of these
provisions.

                                       17




<PAGE>
ORIGINAL ISSUE DISCOUNT SECURITIES

    Investments by the Fund in zero coupon or other discount securities will
result in income to the Fund equal to a portion of the excess of the face value
of the securities over their issue price (the 'original issue discount') each
year that the securities are held, even though the Fund receives no cash
interest payments. This income is included in determining the amount of income
which the Fund must distribute to maintain its status as a regulated investment
company and to avoid the payment of federal income tax and the 4% excise tax.
Because such income may not be matched by a corresponding cash distribution to
the Fund, the Fund may be required to borrow money or dispose of other
securities to be able to make distributions to its shareholders.

INVESTMENT IN REAL ESTATE INVESTMENT TRUSTS

    The Fund may invest in REITs that hold residual interests in real estate
mortgage investment conduits ('REMICs'). Under Treasury regulations that have
not yet been issued, but may apply retroactively, a portion of the Fund's income
from a REIT that is attributable to the REIT's residual interest in a REMIC
(referred to in the Code as an 'excess inclusion') will be subject to federal
income tax in all events. These regulations are also expected to provide that
excess inclusion income of a regulated investment company, such as the Fund,
will be allocated to shareholders of the regulated investment company in
proportion to the dividends received by such shareholders, with the same
consequences as if the shareholders held the related REMIC residual interest
directly. In general, excess inclusion income allocated to shareholders (i)
cannot be offset by net operating losses (subject to a limited exception for
certain thrift institutions), (ii) will constitute unrelated business taxable
income to entities (including a qualified pension plan, an individual retirement
account, a 401(k) plan, a Keogh plan or other tax-exempt entity) subject to tax
on unrelated business income, thereby potentially requiring such an entity that
is allocated excess inclusion income, and otherwise might not be required to
file a tax return, to file a tax return and pay tax on such income, and (iii) in
the case of a foreign shareholder, will not qualify for any reduction in U.S.
federal withholding tax. In addition, if at any time during any taxable year a
'disqualified organization' (as defined in the Code) is a record holder of a
share in a regulated investment company, then the regulated investment company
will be subject to a tax equal to that portion of its excess inclusion income
for the taxable year that is allocable to the disqualified organization,
multiplied by the highest federal income tax rate imposed on corporations. The
Investment Manager does not intend on behalf of the Fund to invest in REITs, a
substantial portion of the assets of which consists of residual interests in
REMICs.

BACKUP WITHHOLDING

    The Fund may be required to withhold U.S. federal income tax on all taxable
distributions and redemption proceeds payable to shareholders who fail to
provide the Fund with their correct taxpayer identification number or to make
required certifications, or who have been notified by the IRS that they are
subject to backup withholding. Corporate shareholders and certain other
shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's U.S. federal income tax liability.

FOREIGN SHAREHOLDERS

    U.S. taxation of a shareholder who, as to the United States, is a
nonresident alien individual, a foreign trust or estate, a foreign corporation
or foreign partnership ('foreign shareholder') depends on whether the income of
the Fund is 'effectively connected' with a U.S. trade or business carried on by
the shareholder.

    Income Not Effectively Connected. If the income from the Fund is not
'effectively connected' with a U.S. trade or business carried on by the foreign
shareholder, distributions of investment company taxable income will be subject
to a U.S. tax of 30% (or lower treaty rate, except in the

                                       18




<PAGE>
case of any excess inclusion income allocated to the shareholder (see
'Taxation -- Investments in Real Estate Investment Trusts' above)), which tax is
generally withheld from such distributions.

    Capital gain dividends and any amounts retained by the Fund which are
designated as undistributed capital gains will not be subject to U.S. tax at the
rate of 30% (or lower treaty rate) unless the foreign shareholder is a
nonresident alien individual and is physically present in the United States for
more than 182 days during the taxable year and meets certain other requirements.
However, this 30% tax on capital gains of nonresident alien individuals who are
physically present in the United States for more than the 182 day period only
applies in exceptional cases because any individual present in the United States
for more than 182 days during the taxable year is generally treated as a
resident for U.S. income tax purposes; in that case, he or she would be subject
to U.S. income tax on his or her worldwide income at the graduated rates
applicable to U.S. citizens, rather than the 30% U.S. tax. In the case of a
foreign shareholder who is a nonresident alien individual, the Fund may be
required to withhold U.S. income tax on distributions of net capital gain unless
the foreign shareholder certifies his or her non-U.S. status under penalties of
perjury or otherwise establishes an exemption. See 'Taxation-Backup
Withholding,' above. Any gain that a foreign shareholder realizes upon the sale
or exchange of such shareholder's shares of the Fund will ordinarily be exempt
from U.S. tax unless (i) in the case of a shareholder that is a nonresident
alien individual, the gain is U.S. source income and such shareholder is
physically present in the United States for more than 182 days during the
taxable year and meets certain other requirements, or (ii) at any time during
the shorter of the period during which the foreign shareholder held shares of
the Fund and the five year period ending on the date of the disposition of those
shares, the Fund was a 'U.S. real property holding corporation' and the foreign
shareholder held more than 5% of the shares of the Fund, in which event the gain
would be taxed in the same manner as for a U.S. shareholder as discussed above
and a 10% U.S. withholding tax would be imposed on the amount realized on the
disposition of such shares to be credited against the foreign shareholder's U.S.
income tax liability on such disposition. A corporation is a 'U.S. real property
holding corporation' if the fair market value of its U.S. real property
interests equals or exceeds 50% of the fair market value of such interests plus
its interests in real property located outside the United States plus any other
assets used or held for use in a business. In the case of the Fund, U.S. real
property interests include interests in stock in U.S. real property holding
corporations (other than stock of a REIT controlled by U.S. persons and holdings
of 5% or less in the stock of publicly traded U.S. real property holding
corporations) and certain participating debt securities.

    Income Effectively Connected. If the income from the Fund is 'effectively
connected' with a U.S. trade or business carried on by a foreign shareholder,
then distributions of investment company taxable income and capital gain
dividends, any amounts retained by the Fund which are designated as
undistributed capital gains and any gains realized upon the sale or exchange of
shares of the Fund will be subject to U.S. income tax at the graduated rates
applicable to U.S. citizens, residents and domestic corporations. Foreign
corporate shareholders may also be subject to the branch profits tax imposed by
the Code.

    The tax consequences to a foreign shareholder entitled to claim the benefits
of an applicable tax treaty may differ from those described herein. Foreign
shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Fund.

OTHER TAXATION

    Fund shareholders may be subject to state, local and foreign taxes on their
Fund distributions. Shareholders are advised to consult their own tax advisers
with respect to the particular tax consequences to them of an investment in the
Fund.

                                       19




<PAGE>
                            PERFORMANCE INFORMATION

    From time to time, the Fund may quote the Fund's total return, aggregate
total return or yield in advertisements or in reports and other communications
to shareholders. The Fund's performance will vary depending upon market
conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of the Fund's performance in the future. In addition, because
performance will fluctuate, it may not provide a basis for comparing an
investment in the Fund with certain bank deposits or other investments that pay
a fixed yield for a stated period of time. Investors comparing the Fund's
performance with that of other investment companies should give consideration to
the quality and maturity of the respective investment companies' portfolio
securities.

AVERAGE ANNUAL TOTAL RETURN

    The Fund's 'average annual total return' figures described in the Prospectus
are computed according to a formula prescribed by the SEC. The formula can be
expressed as follows:

<Table>
<S>           <C>
                               P(1 + T)'pp'n = ERV
  Where: P =  a hypothetical initial payment of $1,000
         T =  average annual total return
         n =  number of years
       ERV =  Ending Redeemable Value of a hypothetical $1,000 investment
              made at the beginning of a 1-, 5-, or 10-year period at the
              end of a 1-, 5-, or 10-year period (or fractional portion
              thereof), assuming reinvestment of all dividends and
              distributions.
</Table>

YIELD

    Quotations of yield for the Fund will be based on all investment income per
share earned during a particular 30-day period (including dividends and
interest), less expenses accrued during the period ('net investment income') and
are computed by dividing net investment income by the maximum offering price per
share on the last day of the period, according to the following formula:


<Table>
<S>           <C>
                                     a-b
                          =  -------------------
                             2[(cd + 1)'pp'6 - 1]
  Where: a =  dividends and interest earned during the period,
         b =  expenses accrued for the period (net of reimbursements),
         c =  the average daily number of shares outstanding during the
              period that were entitled to receive dividends, and
         d =  the maximum offering price per share on the last day of the
              period.
</Table>

    In reports or other communications to shareholders of the Fund or in
advertising materials, the Fund may compare its performance with that of (i)
other investment companies listed in the rankings prepared by Lipper Analytical
Services, Inc., publications such as Barrons, Business Week, Forbes, Fortune,
Institutional Investor, Kiplinger's Personal Finance, Money, Morningstar Mutual
Fund Values, The New York Times, The Wall Street Journal and USA Today or other
industry or financial publications or (ii) the Standard and Poor's Index of 500
Stocks, the Dow Jones Industrial Average, Dow Jones Utility Index, the National
Association of Real Estate Investment Trusts (NAREIT) Equity REIT Index, the
Salomon Brothers Broad Investment Grade Bond Index (BIG), Morgan Stanley Capital
International Europe Australia Far East (MSCI EAFE) Index, the NASDAQ Composite
Index, and other relevant indices and industry publications. The Fund may also
compare the historical volatility of its portfolio to the volatility of such
indices during the same time periods. (Volatility is a generally accepted
barometer of the market risk associated with a portfolio of securities and is
generally measured in comparison to the stock market as a whole -- the
beta -- or in absolute terms -- the standard deviation.)

                                       20




<PAGE>


INCOME POTENTIAL

REITs may offer attractive dividend yields.

                              Current Yield
                         as of December 31, 2001

<Table>
<Caption>
                 30-Year      10-Year     Dow Jones      S&P 500
Equity REITs    Treasury     Treasury   Utility Index     Index
<S>              <C>          <C>         <C>             <C>
   7.1%           5.5%         5.1%         4.2%          1.4%
</Table>

Source: NAREIT, Bloomberg


TOTAL RETURN POTENTIAL

Historically, REITs have provided solid total returns.

                              Total Returns
                         as of December 31, 2001

<Table>
<Caption>
                            Dow Jones      S&P 500
           Equity REITs   Utility Index     Index        NASDAQ      International
<S>           <C>          <C>            <C>            <C>            <C>
1 Year         14%            -26%           -12%         -21%            -21%

5 Years         6%              9%            11%           9%              1%

10 Years       12%              8%            13%          13%              5%
</Table>

Source: NAREIT, Bloomberg


PORTFOLIO DIVERSIFICATION POTENTIAL

REITs can provide portfolio diversification due to their low correlation
with other assets.

                               Correlations
                     Ten Years Ended December 31, 2001

<Table>
<Caption>
               Dow Jones      S&P 500
  REITs      Utility Index     Index      International     NASDAQ     Bonds
<S>             <C>            <C>           <C>            <C>       <C>
   1.0           0.32          0.26           0.20           0.15      0.13
</Table>

Source: Ibbotson


    Returns are historical and include change in share price and reinvestment of
dividends and capital gains. REITs are represented by the National Association
of Real Estate Investment Trust ('NAREIT') Equity REIT Index, an unmanaged
portfolio representing the Equity REIT market. This is not the Fund's
performance and the Fund will not seek to replicate any index. You cannot invest
directly in an index. There is no guarantee that Fund performance will equal or
exceed Equity REIT Index performance.

    The Standard and Poor's 500 Composite Index ('S&P 500') is an unmanaged
index of 500 large capitalization, publicly traded stocks representing a variety
of industries. The NASDAQ Composite Index is a broad based capitalization
weighted index of all NASDAQ national market and small-cap stocks. International
Index, represented by the MSCI EAFE Index (Morgan Stanley Capital International,
Europe, Australia, Far East), is a market value-weighted average of the
performance of more than 900 securities listed on the stock exchanges of
countries in Europe, Australia and the Far East. Bonds, represented by the
Salomon Brothers Broad Investment Grade

                                       21




<PAGE>
Bond Index (BIG), is designed to cover the investment grade universe of bonds
issued in the United States. The BIG index includes institutionally traded U.S.
Treasury, Government-sponsored (U.S. agency and supra-national), mortgage and
corporate securities, and provides a reliable and fair benchmark for the
investment grade bond portfolio manager. The Dow Jones Utilities Average is a
price-weighted average of 15 utility companies that are listed on the New York
Stock Exchange and are involved in the production of electrical energy.
Correlation coefficients are based on monthly return data. Treasury securities
are backed by the full faith and credit of the U.S. Government, while real
estate securities are not. Past performance is no guarantee of future results.

                      COUNSEL AND INDEPENDENT ACCOUNTANTS


    Simpson Thacher & Bartlett serves as counsel to the Fund, and is located at
425 Lexington Avenue, New York, New York 10017-3909. PricewaterhouseCoopers LLP
have been appointed as independent accountants for the Fund. The statement of
assets and liabilities of the Fund as of February 15, 2002 and the statement of
operations of the Fund for the one day then ended included in this statement of
additional information has been so included in reliance on the report of
PricewaterhouseCoopers LLP, New York, New York, independent accountants, given
on the authority of the firm as experts in auditing and accounting.


                             ADDITIONAL INFORMATION

    A Registration Statement on Form N-2, including amendments thereto, relating
to the shares offered hereby has been filed by the Fund with the Securities and
Exchange Commission, Washington, D.C. The Prospectus and this Statement of
Additional Information do not contain all the information set forth in the
Registration Statement, including any exhibits and schedules thereto. For
further information with respect to the Fund and the shares offered hereby,
reference is made to the Registration Statement. Statements contained in the
Prospectus and this Statement of Additional Information as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. A copy of the Registration
Statement may be inspected without charge at the Commission's principal office
in Washington, D.C., and copies of any part thereof may be obtained from the
Commission upon the payment of fees prescribed by the Commission.

                                       22




<PAGE>




<Table>
<Caption>
           COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
     STATEMENT OF ASSETS AND LIABILITIES AS OF FEBRUARY 15, 2002
<S>                                                           <C>
Assets:
    Cash....................................................  $100,275
    Deferred Offering Costs.................................   120,000
    Receivable from adviser.................................    15,000
                                                              --------
        Total Assets........................................   235,275
                                                              --------
Liabilities
    Accrued expenses........................................   120,000
    Payable for organization costs..........................    15,000
                                                              --------
        Total Liabilities...................................   135,000
                                                              --------
Net Assets applicable to 7,000 shares of $.001 par value
  common stock outstanding..................................  $100,275
                                                              --------
                                                              --------
Net asset value per Common Shares outstanding ($100,275
  divided by 7,000 Common shares outstanding)...............  $  14.33
                                                              --------
                                                              --------
</Table>



<Table>
<S>                                                           <C>
                       STATEMENT OF OPERATIONS
               FOR THE ONE DAY ENDED FEBRUARY 15, 2002
INVESTMENT INCOME...........................................  $  --
Expenses:
    Organization costs......................................    15,000
    Expense reimbursement...................................   (15,000)
                                                              --------
        Total expenses......................................     --
                                                              --------
Net investment income.......................................  $  --
                                                              --------
                                                              --------
</Table>



NOTES TO FINANCIAL STATEMENTS



NOTE 1: ORGANIZATION



    Cohen & Steers Quality Income Realty Fund, Inc. (the 'Fund') was
incorporated under the laws of the State of Maryland on August 22, 2001 and is
registered under the Investment Company Act of 1940 (the 'Act'), as amended, as
a closed-end non-diversified management investment company. The Fund has been
inactive since that date except for matters relating to the Fund's
establishment, designation, registration of the Fund's shares of common stock
('Shares') under the Securities Act of 1933, and the sale of 7,000 shares
('Initial Shares') for $100,275 to Cohen & Steers Capital Management, Inc. (the
'Adviser'). The proceeds of such Initial Shares in the Fund were invested in
cash. There are 100,000,000 shares of $0.001 par value common stock authorized.



    Cohen & Steers Capital Management, Inc. has agreed to reimburse all
organization expenses (approximately $15,000) and pay all offering costs (other
than the sales load) that exceed $0.03 per Common Share.



NOTE 2: ACCOUNTING POLICIES



    The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of income and expenses
during the reporting period. Actual results could differ from these estimates.



NOTE 3: INVESTMENT MANAGEMENT AGREEMENT



    The Fund has entered into an Investment Management Agreement with the
Adviser, under which the Adviser will provide general investment advisory and
adminstrative services for the Fund. For providing these services, facilities
and for bearing the related expenses, the Adviser will receive a fee from the
Fund, accrued daily and paid monthly, at an annual rate equal to 0.85% of the
average daily managed assets. Managed asset value is the net asset value of the
Common


                                       23




<PAGE>

Shares plus the liquidation preference of any Fund Preferred Shares and the
principal amount of any borrowings used for leverage.



    In addition to the reimbursement and waiver of organization and offering
costs discussed in Note 1, the Adviser has contractually agreed with the Fund to
waive a portion of its fees in the amount of 0.32% of average daily managed
assets for the first 5 years of the Fund's operations, 0.26% of average daily
managed assets in year 6, 0.20% of average daily managed assets in year 7, 0.14%
of average daily managed assets in year 8, 0.08% of average daily managed assets
in year 9 and 0.02% of average daily managed assets in year 10. The Adviser will
not reimburse the Fund for any portion of its fees beyond December 31, 2011.


                                       24




<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS



To the Shareholder and Board of Directors of
COHEN & STEERS QUALITY INCOME REALTY FUND, INC.:



In our opinion, the accompanying statement of assets and liabilities and the
related statement of operations present fairly, in all material respects, the
financial position of Cohen & Steers Quality Income Realty Fund, Inc. (the
'Fund') at February 15, 2002 and the results of its operations for the one day
then ended in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of
the Fund's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.



PRICEWATERHOUSECOOPERS LLP
New York, New York
February 19, 2002


                                       25









<PAGE>
                                                                      APPENDIX A

                             RATINGS OF INVESTMENTS

    Description of certain ratings assigned by S&P and Moody's:

S&P

LONG-TERM

    'AAA' -- An obligation rated 'AAA' has the highest rating assigned by S&P.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.

    'AA' -- An obligation rated 'AA' differs from the highest rated obligations
only in small degree. The obligor's capacity to meet its financial commitment on
the obligation is very strong.

    'A' -- An obligation rated 'A' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.

    'BBB' -- An obligation rated 'BBB' exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.

    'BB,' 'B,' 'CCC,' 'CC,' and 'C' -- Obligations rated 'BB,' 'B,' 'CCC,' 'CC,'
and 'C' are regarded as having significant speculative characteristics. 'BB'
indicates the least degree of speculation and 'C' the highest. While such
obligations will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major exposures to adverse
conditions.

    'BB' -- An obligation rated 'BB' is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.

    'B' -- An obligation rated 'B' is more vulnerable to nonpayment than
obligations rated 'BB,' but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.

    'CCC' -- An obligation rated 'CCC' is currently vulnerable to nonpayment,
and is dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.

    'CC' -- An obligation rated 'CC' is currently highly vulnerable to
nonpayment.

    'C' -- A subordinated debt or preferred stock obligation rated 'C' is
currently highly vulnerable to nonpayment. The 'C' rating may be used to cover a
situation where a bankruptcy petition has been filed or similar action taken,
but payments on this obligation are being continued. A 'C' also will be assigned
to a preferred stock issue in arrears on dividends or sinking fund payments, but
that is currently paying.

    'D' -- An obligation rated 'D' is in payment default. The 'D' rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The 'D' rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.

    'r' -- The symbol 'r' is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or

                                      A-1




<PAGE>
commodities; obligations exposed to severe prepayment risk -- such as
interest-only or principal-only mortgage securities; and obligations with
unusually risky interest terms, such as inverse floaters.

    'N.R.' -- The designation 'N.R.' indicates that no rating has been
requested, that there is insufficient information on which to base a rating, or
that S&P does not rate a particular obligation as a matter of policy.

    Note: The ratings from 'AA' to 'CCC' may be modified by the addition of a
plus (+) or minus ( - ) sign designation to show relative standing within the
major rating categories.

SHORT-TERM

    'A-1' -- A short-term obligation rated 'A-1' is rated in the highest
category by S&P. The obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are given a plus
sign (+) designation. This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.

    'A-2' -- A short-term obligation rated 'A-2' is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.

    'A-3' -- A short-term obligation rated 'A-3' exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.

    'B' -- A short-term obligation rated 'B' is regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet is
financial commitment on the obligation.

    'C' -- A short-term obligation rated 'C' is currently vulnerable to
nonpayment and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the obligation.

    'D' -- A short-term obligation rated 'D' is in payment default. The 'D'
rating category is used when payments on an obligation are not made on the date
due even if the applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period. The 'D' rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.

MOODY'S

LONG-TERM

    'Aaa' -- Bonds rated 'Aaa' are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as 'gilt
edged.' Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

    'Aa' -- Bonds rated 'Aa' are judged to be of high quality by all standards.
Together with the 'Aaa' group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in 'Aaa' securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the 'Aaa'
securities.

    'A' -- Bonds rated 'A' possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.

                                      A-2




<PAGE>
    'Baa' -- Bonds rated 'Baa' are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

    'Ba' -- Bonds rated 'Ba' are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

    'B' -- Bonds rated 'B' generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

    'Caa' -- Bonds rated 'Caa' are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

    'Ca' -- Bonds rated 'Ca' represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

    'C' -- Bonds rated 'C' are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

    Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from 'Aa' through 'Caa'. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.

PREFERRED STOCK

    Because of the fundamental differences between preferred stocks and bonds,
Moody's employs a variation of our familiar bond rating symbols in the quality
ranking of preferred stock.

    These symbols, presented below, are designed to avoid comparison with bond
quality in absolute terms. It should always be borne in mind that preferred
stock occupies a junior position to bonds within a particular capital structure
and that these securities are rated within the universe of preferred stocks.

    'aaa' -- An issue rated 'aaa' is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.

    'aa' -- An issue rated 'aa' is considered a high-grade preferred stock. This
rating indicates that there is a reasonable assurance the earnings and asset
protection will remain relatively well maintained in the foreseeable future.

    'a' -- An issue rated 'a' is considered to be an upper-medium-grade
preferred stock. While risks are judged to be somewhat greater than in the 'aaa'
and 'aa' classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.

    'baa' -- An issue rated 'baa' is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present, but may be questionable over any great
length of time.

    'ba' -- An issue rated 'ba' is considered to have speculative elements. Its
future cannot be considered well assured. Earnings and asset protection may be
very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.

    'b' -- An issue rated 'b' generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small.

                                      A-3




<PAGE>
    'caa' -- An issue rated 'caa' is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.

    'ca' -- An issue rated 'ca' is speculative in a high degree and is likely to
be in arrears on dividends with little likelihood of eventual payments.

    'c' -- This is the lowest-rated class of preferred or preference stock.
Issues so rated can thus be regarded as having extremely poor prospects of ever
attaining any real investment standing.

    Note: As in the case of bond ratings, Moody's applies to preferred stock
ratings the numerical modifiers 1, 2, and 3 in rating classifications 'aa'
through 'b'. The modifier 1 indicates that the security ranks in the higher end
of its generic rating category; the modifier 2 indicates a mid-range ranking;
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.

PRIME RATING SYSTEM (SHORT-TERM)

    Issuers rated Prime-1 (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. Prime-1 repayment ability
will often be evidenced by many of the following characteristics:

        Leading market positions in well-established industries.

        High rates of return on funds employed.

        Conservative capitalization structure with moderate reliance on debt and
    ample asset protection.

        Broad margins in earnings coverage of fixed financial charges and high
    internal cash generation.

        Well-established access to a range of financial markets and assured
    sources of alternate liquidity.

    Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.

    Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.

    Issuers rated Not Prime do not fall within any of the Prime rating
categories.

                                      A-4










<PAGE>

                                     PART C

                               OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

1) Financial Statements

    Part A -- None


    Part B -- Report of Independent Accountants**



    Statement of Assets and Liabilities**


2) Exhibits


<Table>
<S>  <C>
(a)  -- (i) Articles of Incorporation.*
     -- (ii) Articles of Amendment*
(b)  -- (i) By-Laws.*
(c)  -- Not Applicable
(d)  -- (i) Form of specimen share certificate*
     -- (ii) The rights of security holders are defined in the
        Registrant's Articles of Incorporation (Article FIFTH and
        Article EIGHTH) and the Registrant's By-Laws (Article II
        and Article VI).
(e)  -- Form of Dividend Reinvestment Plan*
(f)  -- Not Applicable
(g)  -- (i) Form of Investment Management Agreement*
     -- (ii) Agreement to Waive Investment Management Fees*
(h)  -- (i) Form of Purchase Agreement**
     -- (ii) Form of Master Agreement Among Underwriters**
     -- (iii) Form of Standard Dealer Agreement**
(i)  -- Not Applicable
(j)  -- Form of Custodian Agreement*
(k)  -- (i) Form of Transfer Agency, Registrar and Dividend
        Disbursing Agency Agreement*
     -- (ii) Form of Administration Agreement between the Fund
        and the Investment Manager*
     -- (iii) Form of Administration Agreement between the Fund
        and State Street Bank and Trust Company*
(l)  -- (i) Opinion and Consent of Simpson Thacher & Bartlett**
     -- (ii) Opinion and Consent of Venable, Baetjer and Howard,
        LLP**
(m)  -- Not Applicable
(n)  -- Consent of Independent Accountants**
(o)  -- Not Applicable
(p)  -- Form of Investment Representation Letter*
(q)  -- Not Applicable
(r)  -- (i) Code of Ethics of the Fund*
     -- (ii) Code of Ethics of Investment Manager*
(s)  -- Power of Attorney*
</Table>


- ---------
*   Previously filed with Fund's Registration Statement


** Filed herewith.


ITEM 25. MARKETING ARRANGEMENTS

    See Exhibit 2(h).

                                      C-1




<PAGE>
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

    The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:


<Table>
<S>                                                           <C>
SEC Registration fees.......................................  $ 55,200
New York Stock Exchange listing fee*........................   150,000
Printing and engraving expenses*............................   400,000
Auditing fees and expenses*.................................     7,500
Legal fees and expenses*....................................   335,000
NASD Fees*..................................................    30,500
Miscellaneous*..............................................     5,000
                                                              -------
    Total*..................................................  $983,200
                                                              -------
                                                              -------
</Table>


- ---------


* Estimated.


ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

    None.

ITEM 28. NUMBER OF HOLDERS OF SECURITIES

<Table>
<Caption>
                                                                NUMBER OF
                       TITLE OF CLASS                         RECORD HOLDERS
                       --------------                         --------------
<S>                                                           <C>
Common Stock, par value $.001 per share.....................       None
</Table>

ITEM 29. INDEMNIFICATION


    It is the Registrant's policy to indemnify its directors, officers,
employees and other agents to the maximum extent permitted by Section 2-418 of
the General Corporation Law of the State of Maryland as set forth in Article
NINTH of Registrant's Articles of Incorporation, and Article VIII of the
Registrant's By-Laws. The liability of the Registrant's directors and officers
is dealt with in Article NINTH of Registrant's Articles of Incorporation. The
liability of Cohen & Steers Capital Management, Inc., the Registrant's
investment manager (the 'Investment Manager'), for any loss suffered by the
Registrant or its shareholders is set forth in Section 5 of the Investment
Management Agreement.


    The Registrant has agreed to indemnify the Underwriters of the Registrant's
common stock to the extent set forth in Exhibit 2(h).

    Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to the directors and officers, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act and is
therefore unenforceable. If a claim for indemnification against such liabilities
under the Securities Act of 1933 (other than for expenses incurred in a
successful defense) is asserted against the Company by the directors or officers
in connection with the shares, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in such Act and will be governed by the
final adjudication of such issue.

ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT MANAGER

    The descriptions of the Investment Manager under the caption 'Management of
the Fund' in the Prospectus and in the Statement of Additional Information,
respectively, constituting Parts A and B, respectively, of this Registration
Statement are incorporated by reference herein.

                                      C-2




<PAGE>
    The following is a list of the Directors and Officers of the Investment
Manager. None of the persons listed below has had other business connections of
a substantial nature during the past two fiscal years.

<Table>
<Caption>
                      NAME                                               TITLE
                      ----                                               -----
<S>                                               <C>
Robert H. Steers................................  Chairman, Director
Martin Cohen....................................  President, Director
Joseph M. Harvey................................  Senior Vice President and Director of Research
James S. Corl...................................  Senior Vice President and Director of Investment
                                                    Strategy
John J. McCombe.................................  Senior Vice President
Adam M. Derechin................................  Senior Vice President
Lawrence B. Stoller.............................  Senior Vice President and General Counsel
Michael J. Kozoriz..............................  Vice President
Greg E. Brooks..................................  Vice President
Jay J. Chen.....................................  Vice President
Terrance R. Ober................................  Vice President
Victor M. Gomez.................................  Vice President and Treasurer
</Table>

    Cohen & Steers Capital Management, Inc. acts as Investment Manager of, in
addition to the Registrant, the following registered investment companies:

    Cohen & Steers Advantage Income Realty Fund, Inc.

    Cohen & Steers Institutional Realty Shares, Inc.

    Cohen & Steers Equity Income Fund, Inc.

    Cohen & Steers Realty Shares, Inc.

    Cohen & Steers Total Return Realty Fund, Inc.

    Cohen & Steers Special Equity Fund, Inc.

    Frank Russell Investment Management Company -- Real Estate Securities Fund

    Russell Insurance Funds -- Real Estate Securities Fund

    American Skandia Trust -- AST Cohen & Steers Realty Portfolio

    Manufacturers Investment Trust -- Real Estate Securities Portfolio

ITEM 31. LOCATION OF ACCOUNTS AND RECORDS

    The majority of the accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940, as amended
and the Rules thereunder will be maintained as follows: journals, ledgers,
securities records and other original records will be maintained principally at
the offices of the Registrant's Administrator and Custodian, State Street Bank
and Trust Company. All other records so required to be maintained will be
maintained at the offices of Cohen & Steers Capital Management, Inc., 757 Third
Avenue, New York, New York 10017.

ITEM 32. MANAGEMENT SERVICES

    Not applicable.

ITEM 33. UNDERTAKINGS

    (1) Registrant undertakes to suspend the offering of shares until the
prospectus is amended, if subsequent to the effective date of this registration
statement, its net asset value declines more than ten percent from its net asset
value as of the effective date of the Registration Statement or its net asset
value increases to an amount greater than its net proceeds as stated in the
prospectus.

    (2) Not applicable.

                                      C-3




<PAGE>
    (3) Not applicable.

    (4) Not applicable.

    (5) Registrant undertakes that, for the purpose of determining any liability
under the Securities Act, the information omitted from the form of prospectus
filed as part of the Registration Statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant pursuant to Rule
497(h) will be deemed to be a part of the Registration Statement as of the time
it was declared effective.

    Registrant undertakes that, for the purpose of determining any liability
under the Securities Act, each post-effective amendment that contains a form of
prospectus will be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
will be deemed to be the initial bona fide offering thereof.

    (6) Registrant undertakes to send by first-class mail or other means
designed to ensure equally prompt delivery, within two business days of receipt
of a written or oral request, any Statement of Additional Information.

                                      C-4









<PAGE>

                                   SIGNATURES


    Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and the State of New York, on
the 25th day of February, 2002.


                                          COHEN & STEERS QUALITY INCOME
                                          REALTY FUND, INC.

                                          By:        /s/ ROBERT H. STEERS
                                              ..................................
                                                      ROBERT H. STEERS
                                                          CHAIRMAN

    Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.


<Table>
<Caption>
               SIGNATURE                                 TITLE                            DATE
               ---------                                 -----                            ----
<S>                                         <C>                                   <C>
By         /s/ GREGORY C. CLARK             Director                              February 25, 2002
 .........................................
            (GREGORY C. CLARK)

By:       /s/ BONNIE COHEN                  Director                              February 25, 2002
 .........................................
              (BONNIE COHEN)

By:       /s/ MARTIN COHEN                  President, Treasurer and Director     February 25, 2002
 .........................................
              (MARTIN COHEN)

By:     /s/ GEORGE GROSSMAN                 Director                              February 25, 2002
 .........................................
            (GEORGE GROSSMAN)

By:    /s/ RICHARD J. NORMAN                Director                              February 25, 2002
 .........................................
           (RICHARD J. NORMAN)

By:   /s/ WILLARD H. SMITH JR.              Director                              February 25, 2002
 .........................................
          (WILLARD H. SMITH JR.)

By:     /s/ ROBERT H. STEERS                Director, Chairman and Secretary      February 25, 2002
 .........................................
            (ROBERT H. STEERS)
</Table>


                                      C-5





                           STATEMENT OF DIFFERENCES
                           ------------------------

The dagger symbol shall be expressed as ................................ 'D'
Characters normally expressed as superscript shall be preceded by....... 'pp'





</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2H
<SEQUENCE>3
<FILENAME>ex99-2hi.txt
<DESCRIPTION>EXHIBIT 99.2H(I)
<TEXT>


<PAGE>


                         [FORM OF PURCHASE AGREEMENT]

                 Cohen & Steers Quality Income Realty Fund, Inc.
                            (a Maryland corporation)

                            [        ] Common Shares
                           (Par Value $.001 Per Share)

                               PURCHASE AGREEMENT

                                                              February   , 2002

Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
               Incorporated
A.G. Edwards & Sons, Inc.
Prudential Securities Incorporated
Raymond James & Associates, Inc.
CIBC World Markets Corp.
Deutsche Banc Alex. Brown Inc.
First Union Securities, Inc.
Legg Mason Wood Walker, Incorporated
U.S. Bancorp Piper Jaffray Inc.
Wells Fargo Securities, LLC
Robert W. Baird & Co. Incorporated
Fahnestock & Co. Inc.
Janney Montgomery Scott LLC
Morgan Keegan & Company, Inc.
Quick & Reilly, Inc.
c/o Merrill Lynch, Pierce, Fenner & Smith
                  Incorporated
North Tower
World Financial Center
New York, New York 10080

Ladies and Gentlemen:

Cohen & Steers Quality Income Realty Fund, Inc., a Maryland corporation (the
"Fund"), and the Fund's investment manager, Cohen & Steers Capital Management,
Inc., a New York corporation (the "Investment Manager"), each confirms its
agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and A.G. Edwards & Sons, Inc., Prudential
Securities Incorporated, Raymond James & Associates, Inc., CIBC World Markets
Corp., Deutsche Banc Alex. Brown Inc., First Union Securities, Inc., Legg Mason
Wood Walker, Incorporated, U.S. Bancorp Piper Jaffray Inc., Wells Fargo
Securities, LLC, Robert W. Baird & Co. Incorporated, Fahnestock & Co. Inc.,
Janney Montgomery Scott LLC, Morgan Keegan & Company, Inc., Quick & Reilly, Inc.
and each of the other Underwriters named in Schedule A hereto (collectively, the
"Underwriters", which term shall also include any underwriter substituted as
hereinafter provided in Section 10 hereof), for whom Merrill Lynch and A.G.
Edwards & Sons, Inc., Prudential Securities Incorporated, Raymond James &
Associates, Inc., CIBC World Markets Corp., Deutsche Banc Alex. Brown Inc.,
First Union Securities, Inc., Legg







<PAGE>



Mason Wood Walker, Incorporated, U.S. Bancorp Piper Jaffray Inc., Wells Fargo
Securities, LLC, Robert W. Baird & Co. Incorporated, Fahnestock & Co. Inc.,
Janney Montgomery Scott LLC, Morgan Keegan & Company, Inc. and Quick & Reilly,
Inc. are acting as representatives (in such capacity, the "Representatives"),
with respect to the issue and sale by the Fund and the purchase by the
Underwriters, acting severally and not jointly, of the respective number of
common shares, par value $.001 per share, of the Fund ("Common Shares") set
forth in said Schedule A, and with respect to the grant by the Fund to the
Underwriters, acting severally and not jointly, of the option described in
Section 2(b) hereof to purchase all or any part of [        ] additional Common
Shares to cover over-allotments, if any. The aforesaid [        ] Common Shares
(the "Initial Securities") to be purchased by the Underwriters and all or any
part of the [                ] Common Shares subject to the option described in
Section 2(b) hereof (the "Option Securities") are hereinafter called,
collectively, the "Securities."

         The Fund understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representatives deem advisable after
this Agreement has been executed and delivered.

         The Fund has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form N-2 (No. 333-68150 and No.
811-10481) covering the registration of the Securities under the Securities Act
of 1933, as amended (the "1933 Act"), including the related preliminary
prospectus or prospectuses, and a notification on Form N-8A of registration of
the Fund as an investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the rules and regulations of the Commission under
the 1933 Act and the 1940 Act (the "Rules and Regulations"). Promptly after
execution and delivery of this Agreement, the Fund will either (i) prepare and
file a prospectus in accordance with the provisions of Rule 430A ("Rule 430A")
of the Rules and Regulations and paragraph (c) or (h) of Rule 497 ("Rule 497")
of the Rules and Regulations or (ii) if the Fund has elected to rely upon Rule
434 ("Rule 434") of the Rules and Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 497. The
information included in any such prospectus or in any such Term Sheet, as the
case may be, that was omitted from such registration statement at the time it
became effective but that is deemed to be part of such registration statement at
the time it became effective, if applicable, (a) pursuant to paragraph (b) of
Rule 430A is referred to as "Rule 430A Information" or (b) pursuant to paragraph
(d) of Rule 434 is referred to as "Rule 434 Information." Each prospectus used
before such registration statement became effective, and any prospectus that
omitted, as applicable, the Rule 430A Information or the Rule 434 Information,
that was used after such effectiveness and prior to the execution and delivery
of this Agreement, including in each case any statement of additional
information incorporated therein by reference, is herein called a "preliminary
prospectus." Such registration statement, including the exhibits thereto and
schedules thereto at the time it became effective and including the Rule 430A
Information and the Rule 434 Information, as applicable, is herein called the
"Registration Statement." Any registration statement filed pursuant to Rule
462(b) of the Rules and Regulations is herein referred to as the "Rule 462(b)
Registration Statement," and after such filing the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. The final prospectus in
the form first furnished to the Underwriters for use in connection with the
offering of the Securities, including the statement of additional information
incorporated therein by reference, is herein called the "Prospectus." If Rule
434 is relied on, the term "Prospectus" shall refer to the preliminary
prospectus dated January 25, 2002 together with the Term Sheet and all
references in this Agreement to the date of the Prospectus shall mean the date
of the Term Sheet. For purposes of this Agreement, all references to the
Registration Statement, any preliminary prospectus, the Prospectus or any Term
Sheet or any amendment or supplement to any of the foregoing shall be deemed to
include the copy filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR").

         All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Registration Statement, any preliminary prospectus or the Prospectus (or other
references of like import) shall be deemed to mean and include all such
financial




                                       2






<PAGE>


statements and schedules and other information which is incorporated by
reference in the Registration Statement, any preliminary prospectus or the
Prospectus, as the case may be.

         SECTION 1. Representations and Warranties.

         (a) Representations and Warranties by the Fund and the Investment
Manager. The Fund and the Investment Manager jointly and severally represent and
warrant to each Underwriter as of the date hereof, as of the Closing Time
referred to in Section 2(d) hereof, and as of each Date of Delivery (if any)
referred to in Section 2(b) hereof, and agree with each Underwriter, as follows:

              (i) Compliance with Registration Requirements. Each of the
         Registration Statement and any Rule 462(b) Registration Statement has
         become effective under the 1933 Act and no stop order suspending the
         effectiveness of the Registration Statement or any Rule 462(b)
         Registration Statement has been issued under the 1933 Act, or order of
         suspension or revocation of registration pursuant to Section 8(e) of
         the 1940 Act, and no proceedings for any such purpose have been
         instituted or are pending or, to the knowledge of the Fund or the
         Investment Manager, are contemplated by the Commission, and any request
         on the part of the Commission for additional information has been
         complied with.

              At the respective times the Registration Statement, any Rule
         462(b) Registration Statement and any post-effective amendments thereto
         became effective and at the Closing Time (and, if any Option Securities
         are purchased, at the Date of Delivery), the Registration Statement,
         the Rule 462(b) Registration Statement, the notification of Form N-8A
         and any amendments and supplements thereto complied and will comply in
         all material respects with the requirements of the 1933 Act, the 1940
         Act and the Rules and Regulations and did not and will not contain an
         untrue statement of a material fact or omit to state a material fact
         required to be stated therein or necessary to make the statements
         therein not misleading. Neither the Prospectus nor any amendments or
         supplements thereto, at the time the Prospectus or any such amendment
         or supplement was issued and at the Closing Time (and, if any Option
         Securities are purchased, at the Date of Delivery), included or will
         include an untrue statement of a material fact or omitted or will omit
         to state a material fact necessary in order to make the statements
         therein, in the light of the circumstances under which they were made,
         not misleading (except that this representation and warranty does not
         apply to statements in or omissions from the Registration Statement or
         the Prospectus made in reliance upon and in conformity with information
         relating to the Underwriters furnished to the Fund by or on behalf of
         the Underwriters expressly for use therein). If Rule 434 is used, the
         Fund will comply with the requirements of Rule 434 and the Prospectus
         shall not be "materially different", as such term is used in Rule 434,
         from the prospectus included in the Registration Statement at the time
         it became effective.

              Each preliminary prospectus and the prospectus filed as part of
         the Registration Statement as originally filed or as part of any
         amendment thereto, or filed pursuant to Rule 497 under the 1933 Act,
         complied when so filed in all material respects with the Rules and
         Regulations and each preliminary prospectus and the Prospectus
         delivered to the Underwriters for use in connection with this offering
         was identical to the electronically transmitted copies thereof filed
         with the Commission pursuant to EDGAR, except to the extent permitted
         by Regulation S-T.

              If a Rule 462(b) Registration Statement is required in connection
         with the offering and sale of the Securities, the Fund has complied or
         will comply with the requirements of Rule 111 under the 1933 Act
         Regulations relating to the payment of filing fees thereof.




                                       3






<PAGE>


              (ii) Independent Accountants. The accountants who certified the
         statement of assets and liabilities included in the Registration
         Statement have represented to the Fund that they are independent public
         accountants as required by the 1933 Act and the Rules and Regulations.

              (iii) Financial Statements. The statement of assets and
         liabilities included in the Registration Statement and the Prospectus,
         together with the related notes, presents fairly the financial position
         of the Fund at the date indicated; said statement has been prepared in
         conformity with generally accepted accounting principles ("GAAP").

              (iv) No Material Adverse Change. Since the respective dates as of
         which information is given in the Registration Statement and the
         Prospectus, except as otherwise stated therein, (A) there has been no
         material adverse change in the condition, financial or otherwise, or in
         the earnings, business affairs or business prospects (other than as a
         result of a change in the financial markets generally) of the Fund,
         whether or not arising in the ordinary course of business (a "Material
         Adverse Effect"), (B) there have been no transactions entered into by
         the Fund, other than those in the ordinary course of business, which
         are material with respect to the Fund, and (C) there has been no
         dividend or distribution of any kind declared, paid or made by the Fund
         on any class of its capital stock.

              (v) Good Standing of the Fund. The Fund has been duly organized
         and is validly existing as a corporation in good standing under the
         laws of the State of Maryland and has corporate power and authority to
         own, lease and operate its properties and to conduct its business as
         described in the Prospectus and to enter into and perform its
         obligations under this Agreement; and the Fund is duly qualified as a
         foreign corporation to transact business and is in good standing in
         each other jurisdiction in which such qualification is required,
         whether by reason of the ownership or leasing of property or the
         conduct of business, except where the failure so to qualify or to be in
         good standing would not result in a Material Adverse Effect.

              (vi) No Subsidiaries. The Fund has no subsidiaries.


              (vii) Investment Company Status. The Fund is duly registered with
         the Commission under the 1940 Act as a closed-end, non-diversified
         management investment company, and to the Fund's knowledge no order of
         suspension or revocation of such registration has been issued or
         proceedings therefor initiated or threatened by the Commission.

              (viii) Officers and Directors. No person is serving or acting as
         an officer, director or investment manager of the Fund except in
         accordance with the provisions of the 1940 Act and the Rules and
         Regulations and the Investment Advisers Act of 1940, as amended (the
         "Advisers Act"), and the rules and regulations of the Commission
         promulgated under the Advisers Act (the "Advisers Act Rules and
         Regulations"). Except as disclosed in the Registration Statement and
         the Prospectus (or any amendment or supplement to either of them), no
         director of the Fund is an "interested person" (as defined in the 1940
         Act) of the Fund or an "affiliated person" (as defined in the 1940 Act)
         of any Underwriter listed in Schedule A hereto.

              (ix) Capitalization. The authorized, issued and outstanding common
         shares of the Fund is as set forth in the Prospectus as of the date
         thereof under the caption "Description of Shares." All issued and
         outstanding common shares of the Fund have been duly authorized and
         validly issued and are fully paid and non-assessable and have been
         offered and sold or exchanged by the Fund in compliance with all
         applicable laws (including, without limitation, federal and state
         securities laws); none of the outstanding common shares of the Fund was
         issued in violation of the preemptive or other similar rights of any
         securityholder of the Fund.

              (x) Authorization and Description of Securities. The Securities to
         be purchased by the Underwriters from the Fund have been duly
         authorized for issuance and sale to the




                                       4






<PAGE>



         Underwriters pursuant to this Agreement and, when issued and delivered
         by the Fund pursuant to this Agreement against payment of the
         consideration set forth herein, will be validly issued and fully paid
         and non-assessable. The Common Shares conform to all statements
         relating thereto contained in the Prospectus and such description
         conforms to the rights set forth in the instruments defining the same;
         no holder of the Securities will be subject to personal liability by
         reason of being such a holder; and the issuance of the Securities is
         not subject to the preemptive or other similar rights of any
         securityholder of the Fund.

              (xi) Absence of Defaults and Conflicts. The Fund is not in
         violation of its articles of incorporation or by-laws, or in default in
         the performance or observance of any obligation, agreement, covenant or
         condition contained in any contract, indenture, mortgage, deed of
         trust, loan or credit agreement, note, lease or other agreement or
         instrument to which it is a party or by which it may be bound, or to
         which any of the property or assets of the Fund is subject
         (collectively, "Agreements and Instruments") except for such violations
         or defaults that would not result in a Material Adverse Effect; and the
         execution, delivery and performance of this Agreement, the Investment
         Management Agreement, the Administration Agreement, the
         Sub-Administration Agreement, the Custodian Agreement and the Transfer
         Agent and Service Agreement referred to in the Registration Statement
         (as used herein, the "Management Agreement," the "Administration
         Agreement", the "Sub-Administration Agreement", the "Custodian
         Agreement" and the "Transfer Agency Agreement," respectively) and the
         consummation of the transactions contemplated herein and in the
         Registration Statement (including the issuance and sale of the
         Securities and the use of the proceeds from the sale of the Securities
         as described in the Prospectus under the caption "Use of Proceeds") and
         compliance by the Fund with its obligations hereunder have been duly
         authorized by all necessary corporate action and do not and will not,
         whether with or without the giving of notice or passage of time or
         both, conflict with or constitute a breach of, or default or Repayment
         Event (as defined below) under, or result in the creation or imposition
         of any lien, charge or encumbrance upon any property or assets of the
         Fund pursuant to, the Agreements and Instruments (except for such
         conflicts, breaches or defaults or liens, charges or encumbrances that
         would not result in a Material Adverse Effect), nor will such action
         result in any violation of the provisions of the articles of
         incorporation or by-laws of the Fund or any applicable law, statute,
         rule, regulation, judgment, order, writ or decree of any government,
         government instrumentality or court, domestic or foreign, having
         jurisdiction over the Fund or any of its assets, properties or
         operations. As used herein, a "Repayment Event" means any event or
         condition which gives the holder of any note, debenture or other
         evidence of indebtedness (or any person acting on such holder's behalf)
         the right to require the repurchase, redemption or repayment of all or
         a portion of such indebtedness by the Fund.

              (xii) Absence of Proceedings. There is no action, suit,
         proceeding, inquiry or investigation before or brought by any court or
         governmental agency or body, domestic or foreign, now pending, or, to
         the knowledge of the Fund or the Investment Manager, threatened,
         against or affecting the Fund, which is required to be disclosed in the
         Registration Statement (other than as disclosed therein), or which
         might reasonably be expected to result in a Material Adverse Effect, or
         which might reasonably be expected to materially and adversely affect
         the properties or assets of the Fund or the consummation of the
         transactions contemplated in this Agreement or the performance by the
         Fund of its obligations hereunder. The aggregate of all pending legal
         or governmental proceedings to which the Fund is a party or of which
         any of its property or assets is the subject which are not described in
         the Registration Statement, including ordinary routine litigation
         incidental to the business, could not reasonably be expected to result
         in a Material Adverse Effect.




                                       5






<PAGE>


              (xiii) Accuracy of Exhibits. There are no contracts or documents
         which are required to be described in the Registration Statement or the
         Prospectus or to be filed as exhibits thereto by the 1933 Act, the 1940
         Act or by the Rules and Regulations which have not been so described
         and filed as required.

              (xiv) Absence of Further Requirements. No filing with, or
         authorization, approval, consent, license, order, registration,
         qualification or decree of, any court or governmental authority or
         agency is necessary or required for the performance by the Fund of its
         obligations hereunder, in connection with the offering, issuance or
         sale of the Securities hereunder or the consummation of the
         transactions contemplated by this Agreement, except such as have been
         already obtained or as may be required under the 1933 Act, the 1940
         Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"),
         or state securities laws.

              (xv) Possession of Licenses and Permits. The Fund possesses such
         permits, licenses, approvals, consents and other authorizations
         (collectively, "Governmental Licenses") issued by the appropriate
         federal, state, local or foreign regulatory agencies or bodies
         necessary to operate its properties and to conduct the business as
         contemplated in the Prospectus; the Fund is in compliance with the
         terms and conditions of all such Governmental Licenses, except where
         the failure so to comply would not, singly or in the aggregate, have a
         Material Adverse Effect; all of the Governmental Licenses are valid and
         in full force and effect, except when the invalidity of such
         Governmental Licenses or the failure of such Governmental Licenses to
         be in full force and effect would not have a Material Adverse Effect;
         and the Fund has not received any notice of proceedings relating to the
         revocation or modification of any such Governmental Licenses which,
         singly or in the aggregate, if the subject of an unfavorable decision,
         ruling or finding, would result in a Material Adverse Effect.

              (xvi) Advertisements. Any advertising, sales literature or other
         promotional material (including "prospectus wrappers", "broker kits,"
         "road show slides" and "road show scripts") authorized in writing by or
         prepared by the Fund or the Investment Manager used in connection with
         the public offering of the Securities (collectively, "sales material")
         does not contain an untrue statement of a material fact or omit to
         state a material fact required to be stated therein or necessary to
         make the statements therein not misleading. Moreover, all sales
         material complied and will comply in all material respects with the
         applicable requirements of the 1933 Act, the 1940 Act, the Rules and
         Regulations and the rules and interpretations of the National
         Association of Securities Dealers, Inc. ("NASD").

              (xvii) Subchapter M. The Fund intends to direct the investment of
         the proceeds of the offering described in the Registration Statement in
         such a manner as to comply with the requirements of Subchapter M of the
         Internal Revenue Code of 1986, as amended ("Subchapter M of the Code"
         and the "Code," respectively), and intends to qualify as a regulated
         investment company under Subchapter M of the Code.

              (xviii) Material Agreements. This Agreement, the Management
         Agreement, the Administration Agreement, the Sub-Administration
         Agreement, the Custodian Agreement and the Transfer Agency Agreement
         have each been duly authorized by all requisite action on the part of
         the Fund, executed and delivered by the Fund, as of the dates noted
         therein and each complies with all applicable provisions of the 1940
         Act. Assuming due authorization, execution and delivery by the other
         parties thereto with respect to the Sub-Administration Agreement, the
         Custodian Agreement and the Transfer Agency Agreement, each of the
         Management Agreement, the Administration Agreement, the
         Sub-Administration Agreement, the Custodian Agreement and the Transfer
         Agency Agreement constitutes a valid and binding agreement of the Fund,
         enforceable in accordance with its terms, except as affected by
         bankruptcy, insolvency, fraudulent conveyance, reorganization,
         moratorium and other similar laws relating to or affecting creditors'




                                       6






<PAGE>


         rights generally, general equitable principles (whether considered in a
         proceeding in equity or at law).

              (xix) Registration Rights. There are no persons with registration
         rights or other similar rights to have any securities registered
         pursuant to the Registration Statement or otherwise registered by the
         Fund under the 1933 Act.

              (xx) NYSE Listing. The Securities have been duly authorized for
         listing, upon notice of issuance, on the New York Stock Exchange
         ("NYSE") and the Fund's registration statement on Form 8-A under the
         1934 Act has become effective.

         (b) Representations and Warranties by the Investment Manager. The
Investment Manager represents and warrants to each Underwriter as of the date
hereof, as of the Closing Time referred to in Section 2(d) hereof, and as of
each Date of Delivery (if any) referred to in Section 2(b) hereof as follows:

              (i) Good Standing of the Investment Manager. The Investment
         Manager has been duly organized and is validly existing and in good
         standing as a corporation under the laws of the State of New York with
         full corporate power and authority to own, lease and operate its
         properties and to conduct its business as described in the Prospectus
         and is duly qualified as a foreign corporation to transact business and
         is in good standing in each other jurisdiction in which such
         qualification is required except where the failure so to register or to
         qualify does not have a material adverse effect on the condition
         (financial or other), business, business prospects, properties, net
         assets or results of operations of the Investment Manager or on the
         ability of the Investment Manager to perform its obligations under this
         Agreement and the Management Agreement.

              (ii) Investment Manager Status. The Investment Manager is duly
         registered and in good standing with the Commission as an investment
         manager under the Advisers Act, and is not prohibited by the Advisers
         Act or the 1940 Act, or the rules and regulations under such acts, from
         acting under the Management Agreement or Administration Agreement for
         the Fund as contemplated by the Prospectus.

              (iii) Description of Investment Manager. The description of the
         Investment Manager in the Registration Statement and the Prospectus
         (and any amendment or supplement to either of them) complied and comply
         in all material respects with the provisions of the 1933 Act, the 1940
         Act, the Advisers Act, the Rules and Regulations and the Advisers Act
         Rules and Regulations and is true and correct and does not contain any
         untrue statement of a material fact or omit to state any material fact
         required to be stated therein or necessary in order to make the
         statements therein, in light of the circumstances under which they were
         made, not misleading.

              (iv) Capitalization. The Investment Manager has the financial
         resources available to it necessary for the performance of its services
         and obligations as contemplated in the Prospectus, this Agreement and
         under the Management Agreement and Administration Agreement to which it
         is a party.

              (v) Authorization of Agreements; Absence of Defaults and
         Conflicts. This Agreement, the Management Agreement and the
         Administration Agreement have each been duly authorized, executed and
         delivered by the Investment Manager, and the Management Agreement and
         the Administration Agreement each constitute a valid and binding
         obligation of the Investment Manager, enforceable in accordance with
         its terms, except as affected by bankruptcy, insolvency, fraudulent
         conveyance, reorganization, moratorium and other similar laws relating
         to or affecting creditors' rights generally and general equitable
         principles (whether considered in a proceeding in equity or at law);
         and neither the execution and delivery of this Agreement, the
         Management Agreement or the Administration Agreement nor the
         performance by the Investment




                                       7






<PAGE>


         Manager of its obligations hereunder or thereunder will conflict with,
         or result in a breach of any of the terms and provisions of, or
         constitute, with or without the giving of notice or lapse of time or
         both, a default under, any agreement or instrument to which the
         Investment Manager is a party or by which it is bound, the certificate
         of incorporation, the by-laws or other organizational documents of the
         Investment Manager, or to the Investment Manager's knowledge, by any
         law, order, decree, rule or regulation applicable to it of any
         jurisdiction, court, federal or state regulatory body, administrative
         agency or other governmental body, stock exchange or securities
         association having jurisdiction over the Investment Manager or its
         properties or operations; and no consent, approval, authorization or
         order of any court or governmental authority or agency is required for
         the consummation by the Investment Manager of the transactions
         contemplated by this Agreement, the Management Agreement or the
         Administration Agreement, except as have been obtained or may be
         required under the 1933 Act, the 1940 Act, the 1934 Act or state
         securities laws.

              (vi) No Material Adverse Change. Since the respective dates as of
         which information is given in the Registration Statement and the
         Prospectus, except as otherwise stated therein, there has not occurred
         any event which should reasonably be expected to have a material
         adverse effect on the ability of the Investment Manager to perform its
         obligations under this Agreement and the Management Agreement and
         Administration Agreement to which it is a party.

              (vii) Absence of Proceedings. There is no action, suit,
         proceeding, inquiry or investigation before or brought by any court or
         governmental agency or body, domestic or foreign, now pending, or, to
         the knowledge of the Investment Manager, threatened against or
         affecting the Investment Manager or any "affiliated person" of the
         Investment Manager (as such term is defined in the 1940 Act) or any
         partners, directors, officers or employees of the foregoing, whether or
         not arising in the ordinary course of business, which might reasonably
         be expected to result in any material adverse change in the condition,
         financial or otherwise, or earnings, business affairs or business
         prospects of the Investment Manager, materially and adversely affect
         the properties or assets of the Investment Manager or materially impair
         or adversely affect the ability of the Investment Manager to function
         as an investment manager or perform its obligations under the
         Management Agreement or the Administration Agreement, or which is
         required to be disclosed in the Registration Statement and the
         Prospectus.

              (viii) Absence of Violation or Default. The Investment Manager is
         not in violation of its certificate of incorporation, by-laws or other
         organizational documents or in default under any agreement, indenture
         or instrument except for such violations or defaults that would not
         result in a material adverse change in the condition, financial or
         otherwise, or in the earnings, business affairs or business prospects
         of the Investment Manager or the Fund.

         (c) Officer's Certificates. Any certificate signed by any officer of
the Fund or the Investment Manager delivered to the Representatives or to
counsel for the Underwriters shall be deemed a representation and warranty by
the Fund or the Investment Manager, as the case may be, to each Underwriter as
to the matters covered thereby.

         SECTION 2. Sale and Delivery to Underwriters; Closing.

         (a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Fund agrees to sell to each Underwriter, severally and not jointly,
and each Underwriter, severally and not jointly, agrees to purchase from the
Fund, at the price per share set forth in Schedule B, the number of Initial
Securities set forth in Schedule A opposite the name of such Underwriter, plus
any additional number of Initial Securities which such Underwriter may become
obligated to purchase pursuant to the provisions of Section 10 hereof.





                                       8






<PAGE>


         (b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Fund hereby grants an option to the Underwriters, severally and
not jointly, to purchase up to an additional [        ] Common Shares in the
aggregate at the price per share set forth in Schedule B, less an amount per
share equal to any dividends or distributions declared by the Fund and payable
on the Initial Securities but not payable on the Option Securities. The option
hereby granted will expire 45 days after the date hereof and may be exercised in
whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Initial Securities upon notice by the Representatives to the
Fund setting forth the number of Option Securities as to which the several
Underwriters are then exercising the option and the time and date of payment and
delivery for such Option Securities. Any such time and date of delivery (a "Date
of Delivery") shall be determined by the Representatives, but shall not be later
than seven full business days after the exercise of said option, nor in any
event prior to the Closing Time, as hereinafter defined. If the option is
exercised as to all or any portion of the Option Securities, each of the
Underwriters, acting severally and not jointly, will purchase that proportion of
the total number of Option Securities then being purchased which the number of
Initial Securities set forth in Schedule A opposite the name of such Underwriter
bears to the total number of Initial Securities, subject in each case to such
adjustments as Merrill Lynch in its discretion shall make to eliminate any sales
or purchases of a fractional number of Option Securities.

         (c) Direct Placements. The Fund may use the proceeds paid by the
Underwriters for the Initial Securities to purchase, concurrently with the
Closing Time, real estate investment trust ("REIT") common stocks issued in
transactions for which Merrill Lynch serves as placement agent for the REIT
issuers ("Direct Placements"). Merrill Lynch, in its individual capacity and not
as a representative of the Underwriters, shall at the Closing Time pay to the
Underwriters, in immediately available funds, an amount equal to 100/115 of 4.5%
of the aggregate purchase price of the Direct Placements of REIT common stock,
and at any Date of Delivery shall pay to the Underwriters, in immediately
available funds, an amount equal to 15/115 of 4.5% of the aggregate purchase
price of the Direct Placements of REIT common stock. The Fund and Merrill Lynch
acknowledge that the aggregate of such amount to be paid by Merrill Lynch
pursuant to this Section at the Closing Time or any Date of Delivery will not
exceed 2.5% of the aggregate offering price of the Initial Securities or the
Option Securities being delivered on that Date of Delivery, respectively.

         (d) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of
Clifford Chance Rogers & Wells LLP, 200 Park Avenue, New York, New York 10166,
or at such other place as shall be agreed upon by the Representatives and the
Fund, at 10:00 A.M. (Eastern time) on the third (fourth, if the pricing occurs
after 4:30 P.M. (Eastern time) on any given day) business day after the date
hereof (unless postponed in accordance with the provisions of Section 10), or
such other time not later than ten business days after such date as shall be
agreed upon by the Representatives and the Fund (such time and date of payment
and delivery being herein called "Closing Time").

         In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
offices, or at such other place as shall be agreed upon by the Representatives
and the Fund, on each Date of Delivery as specified in the notice from the
Representatives to the Fund.

         Payment shall be made to the Fund by wire transfer of immediately
available funds to a bank account designated by the Fund, against delivery to
the Representatives for the respective accounts of the Underwriters of
certificates for the Securities to be purchased by them. It is understood that
each Underwriter has authorized the Representatives, for its account, to accept
delivery of, receipt for, and make payment of the purchase price for, the
Initial Securities and the Option Securities, if any, which it



                                       9






<PAGE>


has agreed to purchase. Merrill Lynch, individually and not as representative of
the Underwriters, may (but shall not be obligated to) make payment of the
purchase price for the Initial Securities or the Option Securities, if any, to
be purchased by any Underwriter whose funds have not been received by the
Closing Time or the relevant Date of Delivery, as the case may be, but such
payment shall not relieve such Underwriter from its obligations hereunder.

         (e) Denominations; Registration. Certificates for the Initial
Securities and the Option Securities, if any, shall be in such denominations and
registered in such names as the Representatives may request in writing at least
one full business day before the Closing Time or the relevant Date of Delivery,
as the case may be. The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Representatives in the City of New York not later than 10:00 A.M. (Eastern time)
on the business day prior to the Closing Time or the relevant Date of Delivery,
as the case may be.

         SECTION 3. Covenants.

         (a) The Fund and the Investment Manager, jointly and severally,
covenant with each Underwriter as follows:

              (i) Compliance with Securities Regulations and Commission
         Requests. The Fund, subject to Section 3(a)(ii), will comply with the
         requirements of Rule 430A or Rule 434, as applicable, and will notify
         the Representatives immediately, and confirm the notice in writing, (i)
         when any post-effective amendment to the Registration Statement shall
         become effective, or any supplement to the Prospectus or any amended
         Prospectus shall have been filed, (ii) of the receipt of any comments
         from the Commission, (iii) of any request by the Commission for any
         amendment to the Registration Statement or any amendment or supplement
         to the Prospectus or for additional information, and (iv) of the
         issuance by the Commission of any stop order suspending the
         effectiveness of the Registration Statement or of any order preventing
         or suspending the use of any preliminary prospectus, or of the
         suspension of the qualification of the Securities for offering or sale
         in any jurisdiction, or of the initiation or threatening of any
         proceedings for any of such purposes. The Fund will promptly effect the
         filings necessary pursuant to Rule 497 and will take such steps as it
         deems necessary to ascertain promptly whether the form of prospectus
         transmitted for filing under Rule 497 was received for filing by the
         Commission and, in the event that it was not, it will promptly file
         such prospectus. The Fund will make every reasonable effort to prevent
         the issuance of any stop order, or order of suspension or revocation of
         registration pursuant to Section 8(e) of the 1940 Act, and, if any such
         stop order or order of suspension or revocation of registration is
         issued, to obtain the lifting thereof at the earliest possible moment.

              (ii) Filing of Amendments. The Fund will give the Representatives
         notice of its intention to file or prepare any amendment to the
         Registration Statement (including any filing under Rule 462(b)), any
         Term Sheet or any amendment, supplement or revision to either the
         prospectus included in the Registration Statement at the time it became
         effective or to the Prospectus, will furnish the Representatives with
         copies of any such documents a reasonable amount of time prior to such
         proposed filing or use, as the case may be, and will not file or use
         any such document to which the Representatives or counsel for the
         Underwriters shall reasonably object.

              (iii) Delivery of Registration Statements. The Fund has furnished
         or will deliver to the Representatives and counsel for the
         Underwriters, without charge, signed copies of the Registration
         Statement as originally filed and of each amendment thereto (including
         exhibits filed therewith or incorporated by reference therein) and
         signed copies of all consents and certificates of experts, and will
         also deliver to the Representatives, without charge, a conformed copy
         of the





                                       10







<PAGE>



         Registration Statement as originally filed and of each amendment
         thereto (without exhibits) for each of the Underwriters. The copies of
         the Registration Statement and each amendment thereto furnished to the
         Underwriters will be identical to the electronically transmitted copies
         thereof filed with the Commission pursuant to EDGAR, except to the
         extent permitted by Regulation S-T.

              (iv) Delivery of Prospectuses. The Fund has delivered to each
         Underwriter, without charge, as many copies of each preliminary
         prospectus as such Underwriter reasonably requested, and the Fund
         hereby consents to the use of such copies for purposes permitted by the
         1933 Act prior to the date of the Prospectus. The Fund will furnish to
         each Underwriter, without charge, during the period when the Prospectus
         is required to be delivered under the 1933 Act or the 1934 Act, such
         number of copies of the Prospectus (as amended or supplemented) as such
         Underwriter may reasonably request. The Prospectus and any amendments
         or supplements thereto furnished to the Underwriters will be identical
         to the electronically transmitted copies thereof filed with the
         Commission pursuant to EDGAR, except to the extent permitted by
         Regulation S-T.

              (v) Continued Compliance with Securities Laws. If at any time when
         a prospectus is required by the 1933 Act to be delivered in connection
         with sales of the Securities, any event shall occur or condition shall
         exist as a result of which it is necessary, in the opinion of counsel
         for the Underwriters or for the Fund, to amend the Registration
         Statement or amend or supplement the Prospectus in order that the
         Prospectus will not include any untrue statements of a material fact or
         omit to state a material fact necessary in order to make the statements
         therein not misleading in the light of the circumstances existing at
         the time it is delivered to a purchaser, or if it shall be necessary,
         in the opinion of such counsel, at any such time to amend the
         Registration Statement or amend or supplement the Prospectus in order
         to comply with the requirements of the 1933 Act or the Rules and
         Regulations, the Fund will promptly prepare and file with the
         Commission, subject to Section 3(a)(ii), such amendment or supplement
         as may be necessary to correct such statement or omission or to make
         the Registration Statement or the Prospectus comply with such
         requirements, and the Fund will furnish to the Underwriters such number
         of copies of such amendment or supplement as the Underwriters may
         reasonably request.

              (vi) Blue Sky Qualifications. The Fund will use its best efforts,
         in cooperation with the Underwriters, to qualify the Securities for
         offering and sale under the applicable securities laws of such states
         and other jurisdictions of the United States as the Representatives may
         designate and to maintain such qualifications in effect for a period of
         not less than one year from the later of the effective date of the
         Registration Statement and any Rule 462(b) Registration Statement;
         provided, however, that the Fund shall not be obligated to file any
         general consent to service of process or to qualify as a foreign
         corporation or as a dealer in securities in any jurisdiction in which
         it is not so qualified or to subject itself to taxation in respect of
         doing business in any jurisdiction in which it is not otherwise so
         subject. In each jurisdiction in which the Securities have been so
         qualified, the Fund will file such statements and reports as may be
         required by the laws of such jurisdiction to continue such
         qualification in effect for a period of not less than one year from the
         effective date of the Registration Statement and any Rule 462(b)
         Registration Statement.

              (vii) Rule 158. The Fund will timely file such reports pursuant to
         the 1934 Act as are necessary in order to make generally available to
         its securityholders as soon as practicable an earnings statement for
         the purposes of, and to provide the benefits contemplated by, the last
         paragraph of Section 11(a) of the 1933 Act.

              (viii) Use of Proceeds. The Fund will use the net proceeds
         received by it from the sale of the Securities in the manner specified
         in the Prospectus under "Use of Proceeds".





                                       11






<PAGE>


              (ix) Listing. The Fund will use commercially reasonable efforts to
         effect the listing of the Securities on the NYSE, subject to notice of
         issuance, concurrently with the effectiveness of the Registration
         Statement.

              (x) Restriction on Sale of Securities. During a period of 180 days
         from the date of the Prospectus, the Fund will not, without the prior
         written consent of Merrill Lynch, (A) directly or indirectly, offer,
         pledge, sell, contract to sell, sell any option or contract to
         purchase, purchase any option or contract to sell, grant any option,
         right or warrant to purchase or otherwise transfer or dispose of Common
         Shares or any securities convertible into or exercisable or
         exchangeable for Common Shares or file any registration statement under
         the 1933 Act with respect to any of the foregoing or (B) enter into any
         swap or any other agreement or any transaction that transfers, in whole
         or in part, directly or indirectly, the economic consequence of
         ownership of the Common Shares, whether any such swap or transaction
         described in clause (A) or (B) above is to be settled by delivery of
         Common Shares or such other securities, in cash or otherwise. The
         foregoing sentence shall not apply to (1) the Securities to be sold
         hereunder or (2) Common Shares issued pursuant to any dividend
         reinvestment plan.

              (xi) Reporting Requirements. The Fund, during the period when the
         Prospectus is required to be delivered under the 1933 Act or the 1934
         Act, will file all documents required to be filed with the Commission
         pursuant to the 1940 Act and the 1934 Act within the time periods
         required by the 1940 Act and the Rules and Regulations and the 1934 Act
         and the rules and regulations of the Commission thereunder,
         respectively.

              (xii) Subchapter M. The Fund will use its best efforts to comply
         with the requirements of Subchapter M of the Code to qualify as a
         regulated investment company under the Code.

              (xiii) No Manipulation of Market for Securities. The Fund will not
         (a) take, directly or indirectly, any action designed to cause or to
         result in, or that might reasonably be expected to constitute, the
         stabilization or manipulation of the price of any security of the Fund
         to facilitate the sale or resale of the Securities, and (b) until the
         Closing Date, or the Date of Delivery, if any, (i) sell, bid for or
         purchase the Securities or pay any person any compensation for
         soliciting purchases of the Securities or (ii) pay or agree to pay to
         any person any compensation for soliciting another to purchase any
         other securities of the Fund.

              (xiv) Rule 462(b) Registration Statement. If the Fund elects to
         rely upon Rule 462(b), the Fund shall file a Rule 462(b) Registration
         Statement with the Commission in compliance with Rule 462(b) by 10:00
         P.M., Washington, D.C. time, on the date of this Agreement, and the
         Fund shall at the time of filing either pay to the Commission the
         filing fee for the Rule 462(b) Registration Statement or give
         irrevocable instructions for the payment of such fee pursuant to Rule
         111(b) under the 1933 Act.

         SECTION 4. Payment of Expenses.

         (a) Expenses. The Fund will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits) as originally filed and of each amendment
thereto, (ii) the preparation, printing and delivery to the Underwriters of this
Agreement, any Agreement among Underwriters and such other documents as may be
required in connection with the offering, purchase, sale, issuance or delivery
of the Securities, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the Underwriters, including any stock or
other transfer taxes and any stamp or other duties payable upon the sale,
issuance or delivery of the Securities to the Underwriters, (iv) the fees and
disbursements of the Fund's counsel, accountants and other advisors, (v) the
qualification of the Securities under securities laws in accordance with the
provisions of Section 3(a)(vi) hereof, including filing fees



                                       12






<PAGE>


and the reasonable fees and disbursements of counsel for the Underwriters in
connection therewith and in connection with the preparation of the Blue Sky
Survey and any supplement thereto, (vi) the printing and delivery to the
Underwriters of copies of each preliminary prospectus, Prospectus and any
amendments or supplements thereto, (vii) the preparation, printing and delivery
to the Underwriters of copies of the Blue Sky Survey and any supplement thereto,
(viii) the fees and expenses of any transfer agent or registrar for the
Securities, (ix) the filing fees incident to, and the reasonable fees and
disbursements of counsel to the Underwriters (up to $10,000) in connection with,
the review by the NASD of the terms of the sale of the Securities, (x) the fees
and expenses incurred in connection with the listing of the Securities on the
NYSE and (xi) the printing of any sales material. The Investment Manager has
agreed to pay organizational expenses and offering costs (other than sales load)
of the Fund that exceed $.03 per Common Share.

         (b) Termination of Agreement. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5 or Section 9(a)
hereof, the Fund and the Investment Manager, jointly and severally, agree that
they shall reimburse the Underwriters for all of their out-of-pocket expenses,
including the reasonable fees and disbursements of counsel for the Underwriters.

         SECTION 5. Conditions of Underwriters' Obligations.

         The obligations of the several Underwriters hereunder are subject to
the accuracy of the representations and warranties of the Fund and the
Investment Manager contained in Section 1 hereof or in certificates of any
officer of the Fund or the Investment Manager delivered pursuant to the
provisions hereof, to the performance by the Fund and the Investment Manager of
their respective covenants and other obligations hereunder, and to the following
further conditions:

         (a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the 1933 Act, no notice or
order pursuant to Section 8(e) of the 1940 Act shall have been issued, and no
proceedings with respect to either shall have been initiated or threatened by
the Commission, and any request on the part of the Commission for additional
information shall have been complied with to the reasonable satisfaction of
counsel to the Underwriters. A prospectus containing the Rule 430A Information
shall have been filed with the Commission in accordance with Rule 497 (or a
post-effective amendment providing such information shall have been filed and
declared effective in accordance with the requirements of Rule 430A) or, if the
Fund has elected to rely upon Rule 434, a Term Sheet shall have been filed with
the Commission in accordance with Rule 497.

         (b) Opinion of Counsel for Fund and the Investment Manager. At Closing
Time, the Representatives shall have received the favorable opinions, dated as
of Closing Time, of Simpson Thacher & Bartlett, counsel for the Fund and of
Lawrence B. Stoller, Esq., internal counsel for the Investment Manager, in form
and substance satisfactory to counsel for the Underwriters, together with signed
or reproduced copies of such letters for each of the other Underwriters
substantially to the effect set forth in Exhibit A hereto and to such further
effect as counsel to the Underwriters may reasonably request. Insofar as the
opinions expressed above relate to or are dependent upon matters governed by
Maryland law, Simpson Thacher & Bartlett will be permitted to rely on the
opinion of Venable, Baetjer and Howard, LLP.

         (c) Opinion of Counsel for Underwriters. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Clifford Chance Rogers & Wells LLP, counsel for the Underwriters,
together with signed or reproduced copies of such letter for each of the other
Underwriters with respect to the matters set forth in clauses (A) (i), (ii),
(vi), (vii) (solely as to preemptive or other similar rights arising by
operation of law or under the charter or by-laws of the Fund), (viii) through
(x), inclusive, (xii), (xiv) (solely as to the information in the Prospectus
under "Description of Shares") and the last paragraph of Exhibit A hereto. In
giving such opinion such counsel may rely, as




                                       13






<PAGE>


to all matters governed by the laws of jurisdictions other than the law of the
State of New York and the federal law of the United States, upon the opinions of
counsel satisfactory to the Representatives. Such counsel may also state that,
insofar as such opinion involves factual matters, they have relied, to the
extent they deem proper, upon certificates of officers of the Fund and
certificates of public officials.

         (d) Officers' Certificates. At Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information is
given in the Prospectus, any material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business prospects of the
Fund, whether or not arising in the ordinary course of business, and the
Representatives shall have received a certificate of a duly authorized officer
of the Fund and of the chief financial or chief accounting officer of the Fund
and of the President or a Vice President or Managing Director of the Investment
Manager, dated as of Closing Time, to the effect that (i) there has been no such
material adverse change, (ii) the representations and warranties in Sections
1(a) and (b) hereof are true and correct with the same force and effect as
though expressly made at and as of Closing Time, (iii) each of the Fund and the
Investment Manager, respectively, has complied with all agreements and satisfied
all conditions on its part to be performed or satisfied at or prior to Closing
Time, and (iv) to the knowledge of such officers, no stop order suspending the
effectiveness of the Registration Statement, or order of suspension or
revocation of registration pursuant to Section 8(e) of the 1940 Act, has been
issued and no proceedings for any such purpose have been instituted or are
pending or are contemplated by the Commission.

         (e) Accountant's Comfort Letter. At the time of the execution of this
Agreement, the Representatives shall have received from PricewaterhouseCoopers
LLP a letter dated such date, in form and substance satisfactory to the
Representatives, together with signed or reproduced copies of such letter for
each of the other Underwriters containing statements and information to the
effect that:

              (i) They are independent certified public accountants with respect
         to the Fund within the meaning of the 1933 Act and 1940 Act, and the
         applicable rules and regulations thereunder adopted by the Commission;

              (ii) In their opinion, the financial statements of the Fund
         audited by them and included in the Registration Statement comply as to
         form in all material respects with the applicable accounting
         requirements of the 1933 Act and 1940 Act and the related rules and
         regulations adopted by the Commission;

              (iii) on the basis of procedures (but not an audit in accordance
         with generally accepted auditing standards) consisting of:

                    a. Reading the minutes of meetings of the Board of Directors
                       of the Fund as set forth in the minute books through a
                       specified date not more than three business days prior to
                       the date of delivery of such letter;

                    b. Making inquiries of certain officials of the Fund who
                       have responsibility for financial and accounting matters
                       regarding changes in the capital stock, net assets or
                       long-term liabilities of the Fund as compared with the
                       amounts shown in the latest balance sheet included in the
                       Registration Statement or for the period from the date of
                       the latest income statement included in the Registration
                       Statement to a specified date not more than three
                       business days prior to the delivery of such letter.

              (iv) The letter shall also state that the information set forth
         under the captions "Summary of Fund Expenses", "Use of Leverage" and
         "Description of Shares" which is expressed in dollars (or percentages
         derived from such dollar amounts) and has been obtained from accounting
         records which are subject to controls over financial reporting or which
         has been derived directly from such accounting records by analysis or
         computation, is in agreement with




                                       14






<PAGE>


         such records or computations made therefrom, and such other procedures
         as the Representatives may request and PricewaterhouseCoopers LLP are
         willing to perform and report upon.

         (f) Bring-down Comfort Letter. At Closing Time, the Representatives
shall have received from PricewaterhouseCoopers LLP a letter, dated as of
Closing Time, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (e) of this Section, except that the specified
date referred to shall be a date not more than three business days prior to
Closing Time.

         (g) Approval of Listing. At Closing Time, the Securities shall have
been approved for listing on the NYSE, subject only to official notice of
issuance.

         (h) No Objection. The NASD has not raised any objection with respect to
the fairness and reasonableness of the underwriting terms and arrangements.

         (i) Conditions to Purchase of Option Securities. In the event that the
Underwriters exercise their option provided in Section 2(b) hereof to purchase
all or any portion of the Option Securities, the representations and warranties
of the Fund contained herein and the statements in any certificates furnished by
the Fund hereunder shall be true and correct as of each Date of Delivery and, at
the relevant Date of Delivery, the Representatives shall have received:

              (i) Officers' Certificates. Certificates, dated such Date of
         Delivery, of a duly authorized officer of the Fund and of the chief
         financial or chief accounting officer of the Fund and of the President
         or a Vice President or Managing Director of the Investment Manager
         confirming that the information contained in the certificate delivered
         by each of them at the Closing Time pursuant to Section 5(d) hereof
         remains true and correct as of such Date of Delivery.

              (ii) Opinions of Counsel for the Fund and the Investment Manager.
         The favorable opinion of Simpson Thacher & Bartlett, counsel for the
         Fund and of Lawrence B. Stoller, Esq., internal counsel for the
         Investment Manager, in form and substance satisfactory to counsel for
         the Underwriters, dated such Date of Delivery, relating to the Option
         Securities to be purchased on such Date of Delivery and otherwise to
         the same effect as the opinion required by Section 5(b) hereof.

              (iii) Opinion of Counsel for the Underwriters. The favorable
         opinion of Clifford Chance Rogers & Wells LLP, counsel for the
         Underwriters, dated such Date of Delivery, relating to the Option
         Securities to be purchased on such Date of Delivery and otherwise to
         the same effect as the opinion required by Section 5(c) hereof.

              (iv) Bring-down Comfort Letter. A letter from
         PricewaterhouseCoopers LLP, in form and substance satisfactory to the
         Representatives and dated such Date of Delivery, substantially in the
         same form and substance as the letter furnished to the Representatives
         pursuant to Section 5(f) hereof, except that the "specified date" in
         the letter furnished pursuant to this paragraph shall be a date not
         more than five days prior to such Date of Delivery.

         (j) Additional Documents. At Closing Time and at each Date of Delivery,
counsel for the Underwriters shall have been furnished with such documents and
opinions as they may require for the purpose of enabling them to pass upon the
issuance and sale of the Securities as herein contemplated, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Fund and the Investment Manager in connection with the organization
and registration of the Fund under the 1940 Act and the issuance and sale of the
Securities as herein contemplated shall be satisfactory in form and substance to
the Representatives and counsel for the Underwriters.





                                       15






<PAGE>


         (k) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of Option
Securities, on a Date of Delivery which is after the Closing Time, the
obligations of the several Underwriters to purchase the relevant Option
Securities, may be terminated by the Representatives by notice to the Fund at
any time at or prior to Closing Time or such Date of Delivery, as the case may
be, and such termination shall be without liability of any party to any other
party except as provided in Section 4 and except that Sections 1, 6, 7, 8 and 13
shall survive any such termination and remain in full force and effect.

         SECTION 6. Indemnification.

         (a) Indemnification of Underwriters. The Fund and the Investment
Manager, jointly and severally, agree to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, as follows:

              (i) against any and all loss, liability, claim, damage and expense
         whatsoever, as incurred, arising out of any untrue statement or alleged
         untrue statement of a material fact contained in the Registration
         Statement (or any amendment thereto), including the Rule 430A
         Information and the Rule 434 Information, if applicable, or the
         omission or alleged omission therefrom of a material fact required to
         be stated therein or necessary to make the statements therein not
         misleading or arising out of any untrue statement or alleged untrue
         statement of a material fact included in any preliminary prospectus or
         the Prospectus (or any amendment or supplement thereto), or the
         omission or alleged omission therefrom of a material fact necessary in
         order to make the statements therein, in the light of the circumstances
         under which they were made, not misleading;

              (ii) against any and all loss, liability, claim, damage and
         expense whatsoever, as incurred, to the extent of the aggregate amount
         paid in settlement of any litigation, or any investigation or
         proceeding by any governmental agency or body, commenced or threatened,
         or of any claim whatsoever based upon any such untrue statement or
         omission, or any such alleged untrue statement or omission; provided
         that (subject to Section 6(e) below) any such settlement is effected
         with the written consent of the Fund; and

              (iii) against any and all expense whatsoever, as incurred
         (including the fees and disbursements of counsel chosen by Merrill
         Lynch), reasonably incurred in investigating, preparing or defending
         against any litigation, or any investigation or proceeding by any
         governmental agency or body, commenced or threatened, or any claim
         whatsoever based upon any such untrue statement or omission, or any
         such alleged untrue statement or omission, to the extent that any such
         expense is not paid under (i) or (ii) above;

provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Fund or the
Investment Manager by any Underwriter through Merrill Lynch expressly for use in
the Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto); provided,
however, that the indemnification contained in this paragraph (a) with respect
to any preliminary prospectus shall not inure to the benefit of any Underwriter
(or to the benefit of any person controlling such Underwriter) on account of any
such loss, claim, damage, liability or expense arising from the sale of the
Securities by such Underwriter to any person if the Fund sustains the burden of
proof that a copy of the Prospectus has not been delivered or sent by the
Underwriters as required to such person within the time required by the 1933 Act
and the 1933 Act Rules and Regulations, and the




                                       16






<PAGE>



untrue statement or alleged untrue statement or omission or alleged omission of
a material fact contained in such preliminary prospectus was corrected in such
Prospectus.

         (b) Indemnification of Fund, Investment Manager, Directors and
Officers. Each Underwriter severally agrees to indemnify and hold harmless the
Fund and the Investment Manager, their respective directors, each of the Fund's
officers who signed the Registration Statement, and each person, if any, who
controls the Fund or the Investment Manager within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Fund or the Investment
Manager by such Underwriter through Merrill Lynch expressly for use in the
Registration Statement (or any amendment thereto) or such preliminary prospectus
or the Prospectus (or any amendment or supplement thereto).

         (c) Indemnification for Marketing Materials. In addition to the
foregoing indemnification, the Fund and the Investment Manager also, jointly and
severally, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act, against any and all loss, liability,
claim, damage and expense described in the indemnity contained in Section 6(a),
as limited by the proviso set forth therein, with respect to any sales material.

         (d) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Fund and the Investment Manager. An
indemnifying party may participate at its own expense in the defense of any such
action; provided, however, that counsel to the indemnifying party shall not
(except with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying parties be liable for fees
and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under this
Section 6 or Section 7 hereof (whether or not the indemnified parties are actual
or potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.

         (e) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(ii) effected without its written consent if (i) such settlement is
entered into




                                       17






<PAGE>


more than 45 days after receipt by such indemnifying party of the aforesaid
request, (ii) such indemnifying party shall have received notice of the terms of
such settlement at least 30 days prior to such settlement being entered into and
(iii) such indemnifying party shall not have reimbursed such indemnified party
in accordance with such request prior to the date of such settlement.

         SECTION 7. Contribution.

         If the indemnification provided for in Section 6 hereof is for any
reason unavailable to or insufficient to hold harmless an indemnified party in
respect of any losses, liabilities, claims, damages or expenses referred to
therein, then each indemnifying party shall contribute to the aggregate amount
of such losses, liabilities, claims, damages and expenses incurred by such
indemnified party, as incurred, (i) in such proportion as is appropriate to
reflect the relative benefits received by the Fund and the Investment Manager on
the one hand and the Underwriters on the other hand from the offering of the
Securities pursuant to this Agreement or (ii) if the allocation provided by
clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Fund and the Investment Manager on the
one hand and of the Underwriters on the other hand in connection with the
statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.

         The relative benefits received by the Fund and the Investment Manager
on the one hand and the Underwriters on the other hand in connection with the
offering of the Securities pursuant to this Agreement shall be deemed to be in
the same respective proportions as the total net proceeds from the offering of
the Securities pursuant to this Agreement (before deducting expenses) received
by the Fund and the total underwriting discount received by the Underwriters
(whether from the Fund or otherwise), in each case as set forth on the cover of
the Prospectus, or, if Rule 434 is used, the corresponding location on the Term
Sheet, bear to the aggregate initial public offering price of the Securities as
set forth on such cover.

         The relative fault of the Fund and the Investment Manager on the one
hand and the Underwriters on the other hand shall be determined by reference to,
among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Fund or the Investment Manager or by the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.

         The Fund, the Investment Manager and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
7. The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 7 shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.

         Notwithstanding the provisions of this Section 7, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.

         No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.




                                       18






<PAGE>


         For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Fund and each director of the Investment Manager,
respectively, each officer of the Fund who signed the Registration Statement,
and each person, if any, who controls the Fund or the Investment Manager, within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Fund and the Investment Manager,
respectively. The Underwriters' respective obligations to contribute pursuant to
this Section 7 are several in proportion to the number of Initial Securities set
forth opposite their respective names in Schedule A hereto and not joint.

         SECTION 8. Representations, Warranties and Agreements to Survive
Delivery.

         All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Fund or the Investment Manager
submitted pursuant hereto, shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of any Underwriter or
controlling person, or by or on behalf of the Fund or the Investment Manager,
and shall survive delivery of the Securities to the Underwriters.

         SECTION 9. Termination of Agreement.

         (a) Termination; General. The Representatives may terminate this
Agreement, by notice to the Fund, at any time at or prior to Closing Time (i) if
there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Fund or the Investment
Manager, whether or not arising in the ordinary course of business, or (ii) if
there has occurred any material adverse change in the financial markets in the
United States or the international financial markets, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of which is
such as to make it, in the judgment of the Representatives, impracticable or
inadvisable to market the Securities or to enforce contracts for the sale of the
Securities, or (iii) if trading in the Common Shares of the Fund has been
suspended or materially limited by the Commission or the NYSE, or if trading
generally on the American Stock Exchange or the NYSE or in the Nasdaq National
Market has been suspended or materially limited, or minimum or maximum prices
for trading have been fixed, or maximum ranges for prices have been required, by
any of said exchanges or by such system or by order of the Commission, the NASD
or any other governmental authority, or a material disruption has occurred in
commercial banking or securities settlement or clearance services in the United
States, or (iv) if a banking moratorium has been declared by either Federal or
New York authorities.

         (b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7, 8 and 13 shall survive such termination and remain in full force and
effect.

         SECTION 10. Default by One or More of the Underwriters.

         If one or more of the Underwriters shall fail at Closing Time or a Date
of Delivery to purchase the Securities which it or they are obligated to
purchase under this Agreement (the "Defaulted Securities"), the Representatives
shall have the right, within 24 hours thereafter, to make arrangements for one
or more of the non-defaulting Underwriters, or any other underwriters, to
purchase all, but not less than all, of the Defaulted Securities in such amounts
as may be agreed upon and upon the terms herein set forth; if, however, the
Representatives shall not have completed such arrangements within such 24-hour
period, then:




                                       19






<PAGE>


         (a) if the number of Defaulted Securities does not exceed 10% of the
number of Securities to be purchased on such date, each of the non-defaulting
Underwriters shall be obligated, severally and not jointly, to purchase the full
amount thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or

         (b) if the number of Defaulted Securities exceeds 10% of the number of
Securities to be purchased on such date, this Agreement or, with respect to any
Date of Delivery which occurs after the Closing Time, the obligation of the
Underwriters to purchase and of the Fund to sell the Option Securities to be
purchased and sold on such Date of Delivery shall terminate without liability on
the part of any non-defaulting Underwriter.

         No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.

         In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the
Underwriters to purchase and the Fund to sell the relevant Option Securities, as
the case may be, either the Representatives or the Fund shall have the right to
postpone Closing Time or the relevant Date of Delivery, as the case may be, for
a period not exceeding seven days in order to effect any required changes in the
Registration Statement or Prospectus or in any other documents or arrangements.
As used herein, the term "Underwriter" includes any person substituted for an
Underwriter under this Section 10.

         SECTION 11. Notices.

         All notices and other communications hereunder shall be in writing and
shall be deemed to have been duly given if mailed or transmitted by any standard
form of telecommunication. Notices to the Underwriters shall be directed to the
Representatives, c/o Merrill Lynch & Co., North Tower, World Financial Center,
New York, New York 10080, attention of Equity Capital Markets; and notices to
the Fund or the Investment Manager shall be directed, as appropriate, to the
office of Cohen & Steers Capital Management, Inc. at 757 Third Avenue, New York,
New York 10017, Attention: Robert H. Steers.

         SECTION 12. Parties.

         This Agreement shall each inure to the benefit of and be binding upon
the Underwriters, the Fund, the Investment Manager and their respective partners
and successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Underwriters, the Fund, the Investment Manager and their respective successors
and the controlling persons and officers and directors referred to in Sections 6
and 7 and their heirs and legal representatives, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the Underwriters, the Fund, the
Investment Manager and their respective partners and successors, and said
controlling persons and officers and directors and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation. No
purchaser of Securities from any Underwriter shall be deemed to be a successor
by reason merely of such purchase.

         SECTION 13. GOVERNING LAW AND TIME.

         THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED IN SAID STATE. UNLESS OTHERWISE EXPLICITLY PROVIDED, SPECIFIED TIMES
OF DAY REFER TO NEW YORK CITY TIME.




                                       20






<PAGE>


         SECTION 14. Effect of Headings.

         The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.




                                       21







<PAGE>


         If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement among
the Underwriters, the Fund and the Investment Manager in accordance with its
terms.

                                     Very truly yours,

                                     Cohen & Steers Quality Income Realty
                                         Fund, Inc.

                                     By:
                                        ---------------------------------------
                                        Name:
                                        Title:

                                     Cohen & Steers Capital Management, Inc.

                                     By:
                                        ---------------------------------------
                                        Name:
                                        Title:


CONFIRMED AND ACCEPTED, as of the date first above written:

MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
          INCORPORATED

A.G. EDWARDS & SONS, INC.
PRUDENTIAL SECURITIES INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.
CIBC WORLD MARKETS CORP.
DEUTSCHE BANC ALEX. BROWN INC.
FIRST UNION SECURITIES, INC.
LEGG MASON WOOD WALKER, INCORPORATED
U.S. BANCORP PIPER JAFFRAY INC.
WELLS FARGO SECURITIES, LLC
ROBERT W. BAIRD & CO. INCORPORATED
FAHNESTOCK & CO. INC.
JANNEY MONTGOMERY SCOTT LLC
MORGAN KEEGAN & COMPANY, INC.
QUICK & REILLY, INC.

By: MERRILL LYNCH, PIERCE, FENNER & SMITH
             INCORPORATED

By:
   ------------------------------------------------
   Authorized Signatory

For themselves and as Representatives of the other Underwriters named in
Schedule A hereto.





                                       22






<PAGE>


                                   SCHEDULE A

<TABLE>
<CAPTION>
                                                                                    Number of
                               Name of Underwriter                              Initial Securities
                               -------------------                              ------------------
<S>                                                                            <C>
Merrill Lynch, Pierce, Fenner & Smith
          Incorporated...................................................
A.G. Edwards & Sons, Inc.................................................
Prudential Securities Incorporated.......................................
Raymond James & Associates, Inc..........................................
CIBC World Markets Corp..................................................
Deutsche Banc Alex. Brown Inc............................................
First Union Securities, Inc..............................................
Legg Mason Wood Walker, Incorporated.....................................
U.S. Bancorp Piper Jaffray Inc...........................................
Wells Fargo Securities, LLC..............................................
Robert W. Baird & Co. Incorporated.......................................
Fahnestock & Co. Inc.....................................................
Janney Montgomery Scott LLC..............................................
Morgan Keegan & Company, Inc.............................................
Quick & Reilly, Inc......................................................

         Total...........................................................          [          ]
                                                                                   ============
</TABLE>



                                    Sch A-1








<PAGE>



                                   SCHEDULE B

                 COHEN & STEERS QUALITY INCOME REALTY FUND, INC.
                      [              ] Common Shares
                           (Par Value $.001 Per Share)

         1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $15.00.

         2. The purchase price per share for the Securities to be paid by the
several Underwriters shall be $[       ], being an amount equal to the initial
public offering price set forth above less $[0. ] per share; provided that the
purchase price per share for any Option Securities purchased upon the exercise
of the over-allotment option described in Section 2(b) shall be reduced by an
amount per share equal to any dividends or distributions declared by the Fund
and payable on the Initial Securities but not payable on the Option Securities.




                                      A-24






<PAGE>



                                                                       Exhibit A

               FORM OF OPINION OF FUND'S AND INVESTMENT MANAGER'S
                       COUNSEL TO BE DELIVERED PURSUANT TO
                                  SECTION 5(b)

With respect to the Fund:

         1. The Fund (A) has been duly incorporated and is validly existing and
in good standing as a corporation under the laws of the State of Maryland with
full corporate power and authority to conduct its business as described in the
Registration Statement and the Prospectus and to enter into and perform its
obligations under the Purchase Agreement, and (B) is duly registered and
qualified to conduct its business and is in good standing in the State of New
York (which is the only jurisdiction identified by management of the Fund to us
in which the Fund owns or leases property or operates or conducts its business);

         2. The statements made in the Prospectus under the caption "Description
of Shares", insofar as they purport to constitute summaries of the terms of the
Fund's common stock, constitute accurate summaries of the terms of such common
stock in all material respects;

         3. All outstanding shares of capital stock of the Fund have been duly
authorized and validly issued by the Fund, and are fully paid and nonassessable;

         4. The Shares have been duly authorized and, when issued and delivered
to the Underwriters against payment therefor in accordance with the terms of the
Purchase Agreement, will be validly issued by the Fund, fully paid and
nonassessable. There are no preemptive rights under federal or New York law or
under the Maryland General Corporation Law to subscribe for or purchase shares
of the Fund's capital stock. There are no preemptive or other rights to
subscribe for or to purchase, nor any restriction upon the issuance, voting or
transfer of, any shares of the Fund's capital stock pursuant to the Fund's
charter or by-laws or any agreement or other instrument filed or incorporated by
reference as an exhibit to the Registration Statement;

         5. The Shares have been authorized for listing, subject to notice of
issuance, on the New York Stock Exchange (the "NYSE"); the form of the
certificate for the Shares conforms to the requirements of the Maryland General
Corporation Law and the NYSE;

         6. The Registration Statement and all post-effective amendments, if
any, have become effective under the 1933 Act and the 1933 Act Rules and
Regulations and, to our knowledge, no stop order suspending the effectiveness of
the Registration Statement or order pursuant to Section 8(e) of the 1940 Act has
been issued and no proceedings for that purpose are pending before or threatened
by the Commission; and any required filing of the Prospectus pursuant to Rule
497 of the 1933 Act Rules and Regulations has been made in accordance with Rule
497;

         7. (A) The Purchase Agreement and each of the Advisory Agreement dated
as of _________, 2002 between the Fund and the Investment Manager and the Fee
Waiver Agreement dated as of _________, 2002 between the Fund and the Investment
Manager (collectively, the "Advisory Agreement"), the Administration Agreement
dated as of _________, 2002 between the Fund and the Investment Manager (the
"Administration Agreement"), the Master Custodian Agreement dated as of
_________, 2002 and effective with respect to Fund as of _________, 2002 between
the Fund and State Street Bank and Trust Company (the "Custodian Agreement"),
the agreement dated as of _________, 2002 and effective with respect to Fund as
of _________, 2002 between the Fund and State Street Bank





                                      A-25






<PAGE>


and Trust Company (the "Sub-Administration Agreement"), and the Stock Transfer
Agent Services Agreement dated as of _________, 2002 between the Fund and
Equiserve Trust Company, NA (the "Transfer Agent Agreement"; collectively with
the Advisory Agreement, Administration Agreement, Custodian Agreement and
Sub-Administration Agreement, the "Fund Agreements") have been duly authorized,
executed and delivered by the Fund and (B) the Advisory Agreement, assuming that
the Advisory Agreement is the valid and legally binding obligations of the other
parties thereto, is a valid and legally binding agreement of the Fund,
enforceable against the Fund in accordance with its terms, subject to the
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally and by general equitable principles (whether considered in a
proceeding in equity or at law) and an implied covenant of good faith and fair
dealing;

         8. The issue and sale of the Shares by the Fund and the compliance by
the Fund with the provisions of the Purchase Agreement and the Fund Agreements
will not breach or result in a default under or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Fund pursuant to any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument filed or incorporated by reference as an exhibit to the
Registration Statement, nor will such action violate the charter or by-laws of
the Fund or any federal or New York statute or any rule or regulation thereunder
or the Maryland General Corporation Law or any rule or regulation thereunder or
order known to us issued pursuant to any federal or New York statute or the
Maryland General Corporation Law by any court or governmental agency or body
having jurisdiction over the Fund or any of its properties;

         9. No consent, approval, authorization, order, registration, filing or
qualification of or with any federal or New York governmental agency or body or
any Maryland governmental agency or body acting pursuant to the Maryland General
Corporation Law or, to our knowledge, any federal or New York court or any
Maryland court acting pursuant to the Maryland General Corporation Law is
required for the issue and sale of the Shares by the Fund and the compliance by
the Fund with all of the provisions of the Purchase Agreement and the Fund
Agreements, except for the registration of the Shares under the 1933 Act and the
1940 Act pursuant to the Registration Statement and under the Securities
Exchange Act of 1934, as amended, pursuant to the Fund's Registration Statement
on Form 8-A, both of which have been filed and have become effective, and such
consents, approvals, authorizations, registrations or qualifications as may be
required under state securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the Underwriters;

         10. To our knowledge, (A) other than as described or contemplated in
the Registration Statement or Prospectus, there are no legal or governmental
proceedings pending or threatened against the Fund, or to which the Fund or any
of its properties is subject and (B) there are no agreements, contracts,
indentures, leases or other instruments that are required to be described in the
Registration Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement that are not described or filed as required, as the case
may be;

         11. The statements made in the Prospectus under the caption "Management
of the Fund", "Description of Shares - Common Shares" and in the Registration
Statement under Item 29 (Indemnification), insofar as they purport to constitute
summaries of the terms of the Maryland General Corporation Law or any federal
statutes, rules and regulations thereunder or contracts and other documents,
constitute accurate summaries of the terms of such statutes, rules and
regulations or contracts and other documents in all material respects;

         12. The statements made in the Prospectus under the caption "Taxation"
insofar as they purport to constitute summaries of matters of United States
federal tax law and regulations or legal




                                      A-26






<PAGE>


conclusions with respect thereto, constitute accurate summaries of the matters
described therein in all material respects;

         13. Each of the Fund Agreements complies as to form with all applicable
provisions of the 1933 Act, 1940 Act, the Investment Advisers Act of 1940, as
amended (the "Advisers Act"), the 1933 Rules and Regulations and the rules and
regulations under the Advisers Act;

         14. The Fund is duly registered with the Commission under the 1940 Act
and the rules and regulations under the 1940 Act (the "1940 Act Rules and
Regulations") as a closed-end, non-diversified management investment company
and, to our knowledge, no order of suspension or revocation of such registration
under the 1940 Act and the 1940 Act Rules and Regulations has been issued or
proceedings therefor initiated or threatened by the Commission; the provisions
of the charter and by-laws do not violate the provisions of the 1940 Act or the
1940 Act Rules and Regulations; and the provisions of the charter and the
by-laws and the investment policies and restrictions described in the
Registration Statement and the Prospectus under the captions "Investment
Objectives and Policies", "Principal Risks of the Fund", "Additional Risk
Considerations" and "Investment Restrictions" (in the Prospectus and the
statement of additional information incorporated by reference therein) comply in
all material respects with the requirements of the 1933 Act, 1940 Act and the
applicable 1933 Act Rules and Regulations and 1940 Act Rules and Regulations;

         15. Except as described in the Prospectus, there are no outstanding
options, warrants or other rights calling for the issuance of, and we do not
know of any commitment, plan or arrangement to issue (other than in connection
with the reinvestment of dividends) any shares of capital stock of the Fund or
any security convertible into or exchangeable or exercisable for shares of
capital stock of the Fund or to otherwise register such securities for sale.

         Insofar as the opinions expressed herein relate to or are dependent
upon matters governed by the laws of the State of Maryland, we have relied upon
the opinion of Venable, Baetjer and Howard, LLP.

         We have not independently verified the accuracy, completeness or
fairness of the statements made or included in the Registration Statement or the
Prospectus and take no responsibility therefor, except as and to the extent set
forth in paragraphs 2, 11 and 12 above. In the course of the preparation by the
Fund of the Registration Statement and the Prospectus, we participated in
conferences with certain officers and employees of the Fund and the Investment
Manager, with representatives of PricewaterhouseCoopers LLP and with counsel to
the Investment Manager. Based upon our examination of the Registration Statement
and the Prospectus, our investigations made in connection with the preparation
of the Registration Statement and the Prospectus and our participation in the
conferences referred to above, (i) we are of the opinion that the Registration
Statement, as of its effective date, the Prospectus, as of its date, and the
notification on Form N-8A, complied as to form in all material respects with the
requirements of the 1933 Act and the 1940 Act and the applicable rules and
regulations of the Commission thereunder, except that in each case we express no
opinion with respect to the financial statements or other financial data
contained or incorporated by reference in the Registration Statement or the
Prospectus, and (ii) we have no reason to believe that the Registration
Statement, at the time the Registration Statement became effective, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein not
misleading or that the Prospectus contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except that in each case we express no belief with respect
to the financial statements or other financial data contained or incorporated by
reference in the Registration Statement or the Prospectus.



                                      A-27






<PAGE>



With respect to the Investment Manager:

         1. The Investment Manager (A) has been duly incorporated and is validly
existing as a corporation under the laws of the State of New York with full
corporate power and authority to conduct its business as described in the
Registration Statement and the Prospectus and (B) is duly registered and
qualified to conduct its business and is in good standing in the State of New
York (which is the only jurisdiction in which the Investment Manager owns or
leases property or operates or conducts its business).

         2. The Investment Manager is duly registered with the Commission as an
investment adviser under the Investment Advisers Act of 1940, as amended (the
"Advisers Act") and is not prohibited by the Advisers Act, the rules and
regulations under the Advisers Act (the "Advisers Act Rules and Regulations"),
the 1940 Act, the rules and regulations under the 1940 Act from acting under the
Advisory Agreement dated as of February __, 2002 between the Fund and the
Investment Manager and the Fee Waiver Agreement dated as of February __, 2002
between the Fund and the Investment Manager (collectively, the "Advisory
Agreement") or the Administration Agreement between the Investment Manager and
the Fund dated as of February __, 2002 (the "Administration Agreement"), for the
Fund as contemplated by the Prospectus; and to my knowledge, no order of
suspension or revocation of such registration under the Advisers Act and the
Advisers Act Rules and Regulations has been issued and no proceedings for that
purpose are pending before or threatened by the Commission;

         3. Each of this Agreement, the Advisory Agreement and the
Administration Agreement has been duly authorized, executed and delivered by the
Investment Manager and assuming that each is the valid and legally binding
agreement of the other parties thereto, each is a valid and legally binding
agreement of the Investment Manager, enforceable against the Investment Manager
in accordance with its terms subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally and by general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing;

         4. Neither the execution, delivery or performance of this Agreement,
the Advisory Agreement or the Administration Agreement by the Investment Manager
or compliance by the Investment Manager with the provisions of this Agreement,
the Advisory Agreement or the Administration Agreement nor consummation by the
Investment Manager of the transactions contemplated hereby and thereby will
breach or result in a default under or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the Investment
Manager pursuant to any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which the Investment Manager is a party or by
which its properties are bound except where breach or default would not
reasonably be expected to have a material adverse effect on the ability of the
Investment Manager to perform its obligations under this Agreement, the Advisory
Agreement or the Administration Agreement, nor will such action violate the
charter or by-laws of the Investment Manager or any federal or New York statute
or any rules or regulations thereunder or order known to me issued pursuant to
any federal or New York statute by any court or governmental agency or body
having jurisdiction over the Investment Manager or any of its properties;

         5. No consent, approval, authorization, order, registration, filing or
qualification of or with any federal or New York governmental agency or body or,
to my knowledge, any federal or New York court is required on the part of the
Investment Manager for the execution, delivery and performance by the Investment
Manager of this Agreement, the Advisory Agreement or the Administration



                                      A-28






<PAGE>



Agreement, except such consents, approvals, authorizations, orders,
registrations, filings or qualifications as have been obtained or made prior to
the date hereof;

         6. To the best of my knowledge, no person is serving as an officer,
director or investment manager of the Fund except in accordance with the 1940
Act and the Rules and Regulations and the Advisers Act and the Advisers Act
Rules and Regulations. Except as disclosed in the Registration Statement and
Prospectus (of any amendment or supplement to either of them), to the best of my
knowledge, no director of the Fund is an "interested person" (as defined in the
1940 Act) of the Fund or an "affiliated person" (as defined in the 1940 Act) of
an Underwriter listed on Schedule A to the Purchase Agreement.

         7. To my knowledge, there are no legal or governmental proceedings
pending or threatened against the Investment Manager, or to which the Investment
Manager or any of its properties is subject, which are required to be described
in the Registration Statement or Prospectus that are not described as required
or which may reasonably be expected to involve a prospective material adverse
change in the ability of the Investment Manager to perform its obligations under
this Agreement, the Advisory Agreement and the Administration Agreement.

         I have not independently verified the accuracy, completeness or
fairness of the statements made or included in the Registration Statement or the
Prospectus and take no responsibility therefor. In the course of the preparation
by the Fund of the Registration Statement and the Prospectus, I participated in
conferences with certain officers and employees of the Fund and the Investment
Manager, with representatives of PricewaterhouseCoopers LLP and with counsel to
the Fund. Based upon my examination of the Registration Statement and the
Prospectus, my investigations made in connection with the preparation of the
Registration Statement and the Prospectus and my participation in the
conferences referred to above, I have no reason to believe that the Registration
Statement, at the time the Registration Statement became effective, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein not
misleading or that the Prospectus contains any untrue statement of material fact
or omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except I express no belief with respect to the financial statements
or other financial data contained or incorporated by reference in the
Registration Statement or the Prospectus.






                                      A-29









</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2H
<SEQUENCE>4
<FILENAME>ex99-2hii.txt
<DESCRIPTION>EXHIBIT 99.2H(II)
<TEXT>

<Page>

                       MASTER AGREEMENT AMONG UNDERWRITERS

                                                                  April 15, 1985

MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, N.Y. 10281-1305

Dear Sirs:

         We understand that from time to time you may act as Representative or
as one of the Representatives of the several underwriters of offerings of
securities of various issuers. This Agreement shall apply to any offering of
securities in which we elect to act as an underwriter after receipt of an
invitation from you which shall identify the issuer, contain information
regarding certain terms of the securities to be offered and specify the amount
of our proposed participation and the names of the other Representatives, if
any, and that our participation as an underwriter in the offering shall be
subject to the provisions of this Agreement. Your invitation will include
instructions for our acceptance of such invitation. At or prior to the time of
an offering, you will advise us, to the extent applicable, as to the expected
offering date, the expected closing date, the initial offering price, the
interest or dividend rate (or the method by which such rate is to be
determined), the conversion price, the underwriting discount, the management
fee, the selling concession and the reallowance, except that if the offering
price of the securities is to be determined as contemplated by Rule 430A under
the Securities Act of 1933 (such procedure being hereinafter referred to as"430A
Pricing"), you shall so advise us and shall specify the maximum underwriting
discount, management fee and selling concession. Such information may be
conveyed by you in one or more communications (such communications received by
us with respect to the offering are hereinafter collectively referred to as the
"Invitation"). If the Purchase Agreement (as hereinafter defined) provides for
the granting of an opinion to purchase additional securities to cover
over-allotments or otherwise (an "over-allotment option"), you will notify us,
in the Invitation, of such option and of our maximum obligation upon exercise of
such option.

         This Agreement, as amended or supplemented by the Invitation, shall
become effective with respect to our participation in an offering of securities
if you receive our oral or written acceptance and you do not receive a written
communication revoking our acceptance prior to the time and date specified in
the Invitation (our unrevoked acceptance after expiration of such time and date
being hereinafter referred to as our "Acceptance"). Our Acceptance will
constitute our confirmation that, except as otherwise stated in such Acceptance,
each statement included in the Master Underwriters' Questionnaire set forth as
Exhibit A hereto (or otherwise furnished to us) is correct. The issuer of the
securities in any offering of securities made pursuant to this Agreement is
hereinafter referred to as the "Issuer". If the Purchase Agreement does not
provide for an over-allotment option, the securities to be purchased are
hereinafter referred to as the "Securities"; if the Purchase Agreement provides
for an over-allotment option, the securities the Underwriters (as hereinafter
defined) are initially obligated to purchase pursuant to the Purchase Agreement
are hereinafter called the "Initial Securities" and any additional securities
which may be purchased upon exercise of the over-allotment option are
hereinafter called the "Option Securities", with the Initial Securities and all
or any part of the Option Securities being hereinafter collectively referred to
as the "Securities". Any underwriters of Securities under this Agreement,
including the Representatives (as hereinafter defined), are hereinafter
collectively referred to as the "Underwriters". All references herein to "you"
or to the "Representatives" shall mean Merrill Lynch, Pierce, Fenner & Smith
Incorporated and the other firms, if any, which are named as Representatives in
the Invitation. The Securities to be offered may, not need not, be registered
for a delayed or continuous offering pursuant to Rule 415 under the Securities
Act of 1933 (the "1933 Act").

         The following provisions of this Agreement shall apply separately to
each individual offering of Securities. This Agreement may be supplemented or
amended by you by written notice to us and, except for supplements or amendments
set forth in an Invitation relating to a particular offering of Securities,



<PAGE>


any such supplement of amendment to this Agreement shall be effective with
respect to any offering of Securities to which this Agreement applies after this
Agreement is so amended or supplemented.

         Section 1. Purchase Agreement: Authority of Representatives.
We authorize you to execute and deliver a purchase agreement and any amendment
or supplement thereto and any associated Terms Agreement or other similar
agreement (collectively, the "Purchase Agreement") on our behalf with the
Issuer and/or any selling securityholder with respect to the Securities in
such form as you determine. We will be bound by all terms of the Purchase
Agreement as executed. We understand that changes may be made in those who
are to be Underwriters, and in the amount of Securities to be purchased by
them, but the amount of Securities to be purchased by us in accordance with
the terms of this Agreement, including the maximum amount of Option Securities,
if any, which we may become obligated to purchase by reason of the exercise of
any over-allotment option provided in the Purchase Agreement, shall not be
changed without our consent except as provided in the Purchase Agreement.

         As Representatives of the Underwriters, you are authorized to take such
action as you deem necessary or advisable to carry out this Agreement, the
Purchase Agreement, and the purchase and sale of the Securities, and to agree to
any waiver or modification of any provisions of the Purchase Agreement. To the
extent applicable, you are also authorized to determined (i) the amount of
Option Securities, if any, to be purchased by the Underwriters pursuant to any
over-allotment option and (ii) with respect to offerings using 430A Pricing, the
initial offering price and the price at which the Securities are to be purchased
in accordance with the Purchase Agreement. It is understood and agreed that
Merrill Lynch, Pierce, Fenner & Smith Incorporated may act on behalf of all
Representatives.

         It is understood that, if so specified in the Invitation, arrangements
may be made for the sale of Securities by the Issuer pursuant to delayed
delivery, contracts (hereinafter referred to as "Delayed Delivery Contracts").
References herein to delayed delivery and Delayed Delivery Contracts apply only
to offerings to which delayed delivery is applicable. The term "underwriting
obligation", as used in this Agreement with respect to any Underwriter, shall
refer to the amount of Securities, including any Option Securities (plus such
additional Securities as may be required by the Purchase Agreement in the event
of a default by one or more of the Underwriters) which such Underwriter is
obligated to purchase pursuant to the provisions of the Purchase Agreement,
without regard to any reduction in such obligation as a result of Delayed
Delivery Contracts which may be entered into by the Issuer.

         If the Securities consist in whole or in part of debt obligations
maturing serially, the serial Securities being purchased by each Underwriter
pursuant to the Purchase Agreement will consist, subject to adjustment as
provided in the Purchase Agreement, of serial Securities of each maturity in a
principal amount which bears the same proportion to the aggregate principal
amount of the serial Securities of such maturity to be purchased by all the
Underwriters as the respective principal amount of serial Securities set forth
opposite such Underwriter's name in the Purchase Agreement bears to the
aggregate principal amount of the serial Securities to be purchased by all the
Underwriters.

         Section 2. Registration Statement and Prospectus; Offering Circular. In
the case of an Invitation regarding an offer of Securities registered under the
1933 Act (a "Registered Offering"), you will furnish to us, to the extent made
available to you by the Issuer, copies of any registration statement or
registration statements relating to the Securities which may be filed with
the Securities and Exchange Commission (the "Commission") pursuant to the 1933
Act and of each amendment thereto (excluding exhibits but including any
documents incorporated by reference therein). Such registration statement(s)
as amended, and the prospectus(es) relating to the sale of Securities by the
Issuer constituting a part thereof, including all documents incorporated
therein by reference, as from time to time amended or supplemented by the
filing of documents pursuant to the Securities Exchange Act of 1934 (the
"1934 Act"), the 1933 Act or otherwise, are referred to herein as the
"Registration Statement" and the "Prospectus", respectively; provided,
however, that a supplement to the Prospectus filed with the Commission
pursuant to Rule 424 under the 1933 Act with respect to an offering of
securities (a "Prospectus Supplement") shall be deemed to have supplemented
the Prospectus only with respect to the offering of Securities to which
it relates.

         With respect to Securities for which no Registration Statement is filed
with the Commission, you will furnish to us, to the extent made available to you
by the Issuer, copies of any private placement



                                       2




<PAGE>


memorandum, offering circular or other offering materials to be used in
connection with the offering of the Securities and of each amendment thereto
(the "Offering Circular").

         Section 3. Offering. The sale of the securities to the public shall
commence as soon as you deem advisable. We will not sell any Securities until
they are released by you for that purpose. When notified by you that the
Securities are released for sale, we will offer in conformity with the terms
of the offering set forth in the Prospectus or Offering Circular, such of the
Securities to be purchased by us as are not reserved for our account for sale
to Selected Dealers and others pursuant to Section 5. After the initial
offering, the offering price and the concession and discount therefrom may
be changed by you by notice to the Underwriters, and we agree to be bound by
any such change.

         If, in accordance with the terms of offering set forth in the
Prospectus or Offering Circular, the offering of the Securities is not at a
fixed price but at varying prices set by individual Underwriters based on market
prices or at negotiated prices, the provisions above relating to your right to
change the offering price and concession and discount to dealers shall not
apply, and other references in this Section and elsewhere in this Agreement to
the offering price or Selected Dealers' concession shall be deemed to mean the
prices and concessions determined by you from time to time in your discretion.

         Unless otherwise permitted in the Invitation, we will not sell any
Securities to any account over which we have discretionary authority. We will
also comply with any other restrictions which may be set forth in the
Invitation.

         The initial public advertisement, if any, with respect to the
Securities shall appear on such date, and shall include the names of such of the
Underwriters, as you may determine.

         Section 4. Delayed Delivery Arrangements. We authorize you to act on
our behalf in making all arrangements for the solicitation of offers to purchase
Securities from the Issuer pursuant to Delayed Delivery Contracts, and we agree
that all such arrangements will be made only through you (directly or through
Underwriters or Selected Dealers). You may allow to Selected Dealers in respect
to such Securities a commission equal to the concession allowed to Selected
Dealers pursuant to Section 5.

         The obligations of the Underwriters shall be reduced in the aggregate
by the principal amount of Securities covered by Delayed Delivery Contracts made
by the Issuer, the obligation of each Underwriter to be reduced by the principal
amount of such Securities, if any, allocated by you to such Underwriter. Your
determination of the allocation of Securities covered by Delayed Delivery
Contracts among the several Underwriters shall be final and conclusive, and we
agree to be bound by any notice delivered by you to the Issuer setting forth the
amount of the reduction in our obligation as a result of Delayed Delivery
Contracts.

         Upon receiving payment from the Issuer of the fee for arranging Delayed
Delivery Contracts, you will credit our account with the portion of such fee
applicable to the Securities covered by Delayed Delivery Contracts allocated to
us. You will charge our account with any commission allocated to Selected
Dealers in respect of Securities covered by Delayed Delivery Contracts allocated
to us.

         Section 5. Offering to Selected Dealers and Others; Management of
Offering. We authorize you, for our account, to reserve for sale and sell to
dealers ("Selected Dealers"), among whom any of the Underwriters may be
included, such amount of Securities to be purchased by us as you shall
determine. Reservations for sales to Selected Dealers for our account need
not be in proportion to our underwriting obligation, but sales of Securities
reserved for our account for sale to Selected Dealers shall be made as nearly
as practicable in the ratio which the amount of Securities reserved for our
account bears to the aggregate amount of Securities reserved for the account
of all Underwriters, as calculated from day to day. Sales to Selected Dealers
may be made under the Merrill Lynch, Pierce, Fenner & Smith Incorporated
Standard Dealer Agreement, or otherwise. The price to Selected Dealers
initially shall be the offering price less a concession not in excess of
the Selected Dealers concession set forth in the Invitation. Selected Dealers
shall be actually engaged in the investment banking or securities business and
shall be either (i) members in good standing of the National Association of
Securities Dealers, Inc. (the "NASD") or (ii) dealers with their principal
place of business located outside the United States, its territories and its
possessions and not registered under the 1934 Act who agree to make no sales
within the United States, its territories or its possessions or to persons
who are nationals thereof or residents therein



                                       3




<PAGE>


or (iii) banks that are not eligible for membership in the NASD. Each Selected
Dealer shall agree to comply with the provisions of Section 24 of Article III of
the Rules of Fair Practice of the NASD, and each foreign Selected Dealer or bank
who is not a member of the NASD also shall agree to comply with the NASD's
interpretation with respect to free-riding and withholding, to comply, as though
it were a member of the NASD, with the provisions of Sections 8 and 36 of
Article III of such Rules of Fair Practice, and to comply with Section 25 of
Article III thereof as that Section applies to a non-member foreign dealer or
bank.

         With your consent, the Underwriters may allow, and Selected Dealers may
reallow, a discount on sales to any dealer who meets the above NASD requirements
in an amount not in excess of the amount set forth in the Invitation. Upon your
request, we will advise you of the identity of any dealer to whom we allow such
a discount and any Underwriter or Selected Dealer from whom we receive such a
discount.

         We also authorize you, for your account, to reserve for sale and to
sell Securities to be purchased by us at the offering price to others, including
institutions and retail purchasers. Except for such sales which are designated
by a purchaser to be for the account of a particular Underwriter, such
reservations and sales shall be made as nearly as practicable in proportion to
our underwriting obligation, unless you agree to a smaller proportion at our
request.

         At or before the time the Securities are released for sale, you shall
notify us of the amount of Securities which have not been reserved for our
account for sale in Selected Dealers and others and which is to be retained by
us for direct sale.

         We will from time to time, upon your request, report to you the amount
of Securities retained by us for direct sale which remains unsold and, upon your
request, deliver to you for our account, or sell to you for the account of one
or more of the Underwriters, such amount of unsold Securities as you may
designate at the offering price less an amount determined by you not in excess
of the concession to Selected Dealers. You may also repurchase Securities from
other Underwriters and Selected Dealers, for the account of one or more of the
Underwriters, at prices determined by you not in excess of the offering price
less the concession to Selected Dealers.

         You may from time to time deliver to any Underwriter, for carrying
purposes or for sale by such Underwriter, any of the Securities then reserved
for sale to, but not purchased and paid for by, Selected Dealers or others as
above provided, but to the extent that Securities are so delivered for sale by
such Underwriter, the amount of Securities then reserved for the account of such
Underwriter shall be correspondingly reduced. Securities delivered for carrying
purposes only shall be redelivered to you upon demand.

         The Underwriters and Selected Dealers may, with your consent, purchase
Securities from and sell Securities to each other at the offering price less a
concession not in excess of the concession to Selected Dealers.

         Section 6. Repurchase of Securities Not Effectively Placed. In
recognition of the importance of distributing the Securities to bona fide
investors, we agree to repurchase on demand any Securities sold by us, except
through you, which are purchased by you in the open market or otherwise during
a period terminating as provided in Section 16, at a price equal to the cost of
such purchase, including accrued interest, amortization of original issue
discount or dividends, commissions and transfer and other taxes, if any, on
redelivery. The certificates delivered to us need not be identical certificates
delivered to you in respect of the Securities purchased. In lieu of requiring
repurchase, you may, in your discretion, sell such Securities for our account
at such prices, upon such terms and to such persons, including any of the
other Underwriters, as you may determine, charging the amount of any loss
and expense, or crediting the amount of any net profit, resulting from such
sale, to our account, or you may charge our account with an amount determined
by you not in excess of the concession to Selected Dealers.

         Section 7. Stabilization and Over-Allotment. In order to facilitate the
sale of the Securities, we authorize you, in your discretion, to purchase and
sell Securities or any other securities of the Issuer or any guarantor of the
Securities specified in the Invitation in the open market or otherwise, for long
or


                                       4




<PAGE>


short account, at such prices as you may determine, and, in arranging for sales
to Selected Dealers or others, to over-allot. You may liquidate any long
position or cover any short position incurred pursuant to this Section at such
prices as you may determine. You shall make such purchases and sales (including
over-allotments) for the accounts of the Underwriters as nearly as practicable
in proportion to their respective underwriting obligations. It is understood
that, in connection with any particular offering of Securities to which this
Agreement applies, you may have made purchases of securities of the Issuer or
securities of any guarantor of the Securities for stabilizing purposes prior to
the time when we become an Underwriter, and we agree that nay such securities so
purchased shall be treated as having been purchased for the respective accounts
of the Underwriters pursuant to the foregoing authorization. At the close of
business on any day our net commitment, either for long or short account,
resulting from such purchases or sales (including over-allotments) shall not
exceed 20% (or such other amount as may be specified in the Invitation) of our
underwriting obligation, except that such percentage may be increased with the
approval of a majority in interest of the Underwriters. We will take up at cost
on demand any Securities or other securities of the Issuer or any securities of
any guarantor of the Securities so sold or over-allotted for our account,
including accrued interest, amortization of original issue discount or
dividends, and we will pay to you on demand the amount of any losses or expenses
incurred for our account pursuant to this Section. In the event of default by
any Underwriter in respect of its obligations under this Section, each
non-defaulting Underwriter shall assume its share of the obligations of such
defaulting Underwriter in the proportion that its underwriting obligation bears
to the underwriting obligations of all non-defaulting Underwriters without
relieving such defaulting Underwriter of its liability hereunder.

         If you effect any stabilizing purchase pursuant to this Section, you
shall promptly notify us of the date and time of the first stabilizing purchases
and the date and time when stabilizing was terminated. You shall prepare and
maintain such records as are required to be maintained by you as manager
pursuant to Rule 17a-2 under the 1934 Act.

         Section 8. Open Market Transactions. We represent and agree in
connection with the offering of Securities we have complied wand will comply
with the provisions of Rule 10b-6 under the 1934 Act with regard to trading in
the Securities. For purposes of the foregoing sentence, we agree that, in
addition to the Securities, other securities of the Issuer or securities of
any guarantor of the Securities or the right or option to purchase or
otherwise acquire any securities of the Issuer or any securities of any
guarantor of the Securities specified in the Invitations shall be considered
securities of the same class and series as the Securities.

         Section 9. Payment and Delivery. At or before such time, on such dates
and at such places as you may specify in the Invitation, we will deliver to you
a certified or official bank check in such funds as are specified in the
Invitation, payable to the order of Merrill Lynch, Pierce, Fenner & Smith
Incorporated (unless otherwise specified in the Invitation) in an amount equal
to, as you direct, either (i) the offering price or prices plus accrued
interest, amortization of original issue discount or dividends, if any, set
forth in the Prospectus or Offering Circular less the concession to Selected
Dealers in respect of the amount of Securities to be purchased by us in
accordance with the terms of this Agreement, or (ii) the amount set forth in the
Invitation with respect to the Securities to be purchased by us. We authorize
you to make payment for our account of the purchase price for the Securities to
be purchased by us against delivery to you of such Securities (which may be in
temporary form), and the difference between such purchase price of the
Securities and the amount of our funds delivered to you therefor shall be
credited to our account.

         Delivery to us of Securities retained by us for direct sale shall be
made by you as soon as practicable after your receipt of the Securities. Upon
termination of the provisions of this Agreement as provided in Section 16, you
shall deliver to us any Securities reserved for our account for sale to Selected
Dealers and others which remain unsold at that time.

         You are authorized to make appropriate arrangements for payment for
and/or delivery through the facilities of The Depository Trust Company or any
such other depository or similar facility, the Securities to be purchased by us,
or, if we are not a member, settlement may be made through a correspondent that
is a member pursuant to our timely instructions to you.


                                       5




<PAGE>


         Upon receiving payment for Securities sold for our account to Selected
Dealers and others, you shall remit to us an amount equal to the amount paid by
us to you in respect of such Securities and credit or charge our account with
the difference, if any, between such amount and the price at which such
Securities were sold.

         In the event that the Purchase Agreement for an offering provides for
the payment of a commission or other compensation to the Underwriters, we
authorize you to receive such commission or other compensation for our account.

         Section 10. Management Compensation. As compensation for our services
in the management of the offering, we will pay you an amount equal to the
management fee specified in the Invitation in respect of the Securities to be
purchased by us pursuant to the Purchase Agreement, and we authorize you to
charge our account with such amount. If there is more than one Representative,
such compensation shall be divided among the Representatives in such proportions
as they may determine.

         Section 11. Authority to Borrow. We authorize you to advance your own
funds for our account, charging current interest rates, or to arrange loans for
our account or the account of the Underwriters, as you may deem necessary or
advisable for the purchase, carrying, sale and distribution of the Securities.
You may execute and deliver any notes or other instruments required in
connection therewith and may hold or pledge as security therefor all or any part
of the Securities which we or such Underwriters have agreed to purchase. The
obligations of the Underwriters under loans arranged on their behalf shall be
several in proportion to their respective participations in such loans, and not
joint. Any lender is authorized to accept your instructions as to the
disposition of the proceeds of any such loans. You shall credit each Underwriter
with the proceeds of any loans made for its account.

         Section 12. Legal Qualifications. You shall inform us, upon request, of
the states and other jurisdictions of the United States in which it is believed
that the Securities are qualified for sale under, or are exempt from the
requirements of, their respective securities laws, but you assume no
responsibility with respect to our right to sell Securities in any jurisdiction.
You are authorized to file with the Department of State of the State of New York
a Further State Notice with respect to the Securities, if necessary.

         If we propose to offer Securities outside the United States, its
territories or its possessions, we will take, at our own expense, such action,
if any, as may be necessary to comply with the laws of each foreign jurisdiction
in which we propose to offer Securities.

         Section 13. Membership in National Association of Securities Dealers,
Foreign Underwriters and Banks. We understand that you are a member in good
standing of the NASD. We confirm that we are actually engaged in the investment
banking or securities business and are either (i) a member in good standing of
the NASD or (ii) a dealer with its principal place of business located outside
the United States, its territories and its possessions and not registered under
the 1934 Act who hereby agrees to make no sales within the United States, its
territories or its possessions or to persons who are nationals thereof or
residents therein (except that we may participate in sales to Selected Dealers
and others under Section 5 of this agreement) or (iii) a bank not eligible for
membership in the NASD. We hereby agree to comply with Section 24 of Article III
of the Rules of Fair Practice of the NASD, and if we are a foreign dealer or
bank and not a member of the NASD we also hereby agree to comply with the NASD's
interpretation with respect to free-riding and withholding, to comply, as though
we were a member of the NASD, with the provisions of Sections 8 and 36 of
Article III of such Rules of Fair Practice, and to comply with Section 25 of
Article III thereof as that Section applies to a non-member foreign dealer or
bank.

         Section 14. Distribution of Prospectuses: Offering Circulars. We are
familiar with Securities Act of 1933 Release No. 4968 and Rule 15c2-8 under the
1934 Act, relating to the distribution of preliminary and final prospectuses,
and we confirm that we will comply therewith, to the extent applicable, in
connection with any sale of Securities. You shall cause to be made available to
us, to the extent made available to you by the Issuer, such number of copies of
the Prospectus as we may reasonably request for purposes contemplated by the
1933 Act, the 1934 Act and the rules and regulations thereunder.



                                       6




<PAGE>


         Our Acceptance of an Invitation relating to an offering made pursuant
to an Offering Circular shall constitute our agreement that, if requested by
you, we will furnish a copy of any amendment to a preliminary or final Offering
Circular to each person in whom we shall have furnished a previous preliminary
or final Offering Circular. Our Acceptance shall constitute our confirmation
that we have delivered and our agreement that we will deliver all preliminary
and final Offering Circulars required for compliance with the applicable federal
and state laws and the applicable rules and regulations of any regulatory body
promulgated thereunder governing the use and distribution of offering circulars
by underwriters and any additional instructions contained in the Invitation and
to the extent consistent with such laws, rules and regulations, our Acceptance
shall constitute our confirmation that we have delivered and our agreement that
we will deliver all preliminary and final Offering Circulars which would be
required if the provisions of Rule 15c2-8 (or any successor provision) under the
1934 Act applied to such offering.

         Section 15. Net Capital. The incurrence by us of our obligations
hereunder and under the Purchase Agreement in connection with the offering of
the Securities will not place us in violation of the net capital requirements of
Rule 15c3-1, under the 1934 Act, or, if we are a financial institution subject
to regulation by the Board of Governors of the Federal Reserve System the
Comptroller of the Currency or the Federal Deposit Insurance Corporation, will
not place us in violation of the capital requirements of such regulator or any
other regulator to which we are subject.

         Section 16. Termination. With respect to each offering of Securities
pursuant to this agreement, all limitations in this Agreement on the price at
which the Securities may be sold, the period of time referred to in Section 6,
the authority granted by the first sentence of Section 7, and the restrictions
contained in Section 8 shall terminate at the close of business on the 45th day
after the commencement of the offering of such Securities. You may terminate any
or all of such provisions at any time prior thereto by notice to the
Underwriters. All other provisions of this Agreement shall remain operative and
in full force and effect with respect to such offering.

         Section 17. Expenses and Settlement. You may charge our account with
any transfer taxes on sales of Securities made for our account and with our
proportionate share (based upon our underwriting obligation) of all other
expenses incurred by you under this Agreement or otherwise in connection with
the purchase, carrying, sale or distribution of the Securities. With respect to
each offering of Securities pursuant to this agreement, the respective accounts
of the Underwriters shall be settled as promptly as practicable after the
termination of all the provisions of this Agreement as provided in Section 16,
but you may reserve such amounts as you may deem advisable for additional
expenses. Your determination of the amount to be paid to or by us shall be
conclusive. You may at any time make partial distributions of credit balances or
call for payment of debit balances. Any of our funds in your hands may be held
with your general funds without accountability for interest. Notwithstanding any
settlement, we will remain liable for any taxes on transfers for our account and
for our proportionate share (based upon our underwriting obligation) of all
expenses and liabilities which may be incurred by or for the accounts of the
Underwriters with respect to each offering of Securities pursuant to this
Agreement.

         Section 18. Indemnification. With respect to each offering of
Securities pursuant to this Agreement, we will indemnify and hold harmless each
other Underwriter and each person, if any, who controls each other Underwriter
within the meaning of Section 15 of the 1933 Act, to the extent that and on the
terms upon which we agree to indemnify and hold harmless the Issuer and other
specified persons as set forth in the Purchase Agreement.

         Section 19. Claims Against Underwriters. With respect to each offering
of Securities pursuant to this Agreement, if at any time any person other than
an Underwriter asserts a claim (including any commenced or threatened
investigation or proceeding by any governmental agency or body) against one or
more of the Underwriters or against you as Representatives of the Underwriters
arising out of an alleged untrue statement or omission in the Registration
Statement (or any amendment thereto) or in any preliminary prospectus or the
Prospectus or any amendment or supplement thereto, or in any preliminary or
final Offering Circular, or relating to any transaction contemplated by this
Agreement, we authorize



                                       7




<PAGE>


you to make such investigation, to retain such counsel for the Underwriters and
to take such action in the defense of such claim as you may deem necessary or
advisable. You may settle such claim with the approval of a majority in interest
of the Underwriters. We will pay our proportionate share (based upon our
underwriting obligation) of all expenses incurred by you (including the fees and
expenses of counsel for the Underwriters) as incurred, in investigating and
defending against such claim and our proportionate share of the aggregate
liability incurred by all Underwriters in respect to such claim (after deducting
any contribution or indemnification obtained pursuant to the Purchase Agreement,
or otherwise from persons other than Underwriters), whether such liability is
the result of a judgment against one or more of the Underwriters or the result
of any such settlement. Any Underwriter may retain separate counsel at its own
expense. A claim against or liability incurred by a person who controls an
Underwriter shall be deemed to have been made against or incurred by such
Underwriter. In the event of default by any Underwriter, in respect of its
obligations under this Section, the non-defaulting Underwriters shall be
obligated to pay the full amount thereof in the proportions that their
respective underwriting obligations bear to the underwriting obligations of all
non-defaulting Underwriters without relieving such defaulting Underwriter of its
liability hereunder.

         Section 20. Default by Underwriters. Default by an Underwriter in
respect of its obligations hereunder or under the Purchase Agreement shall not
release us from any of our obligations or in any way affect the liability of
such defaulting Underwriter to the other Underwriters for damages resulting from
such default. If one or more Underwriters default under the Purchase Agreement,
if provided in such Purchase Agreement you may (but shall not be obligated to)
arrange for the purchase by others, which may include yourselves or other
non-defaulting Underwriters, of all or a portion of the Securities not taken up
by the defaulting Underwriters.

         In the event that such arrangements are made, the respective
underwriting obligations of the non-defaulting Underwriters and the amounts of
the Securities to be purchased by others, if any, shall be taken as the basis
for all rights and obligations hereunder; but this shall not in any way affect
the liability of any defaulting Underwriter to the other Underwriters for
damages resulting from its default, nor shall any such default relieve any other
Underwriter of any of its obligations hereunder or under the Purchase Agreement
except as herein or therein provided. In addition, in the event of default by
one or more Underwriters in respect of their obligations under the Purchase
Agreement to purchase the Securities agreed to be purchased by them thereunder
and, to the extent that arrangements shall not have been made by you for any
person to assume the obligations of such defaulting Underwriter or Underwriters,
we agree, if provided in the Purchase Agreement, to assume our proportionate
share, based upon our underwriting obligation, of the obligations of each such
defaulting Underwriter (subject to the limitations contained in the Purchase
Agreement) without relieving such defaulting Underwriter of its liability
therefor.

         In the event of default by one or more Underwriters in respect of their
obligations under this Agreement to take up and pay for any securities
purchased, or to deliver any securities sold or overalloted, by you for the
respective accounts of the Underwriters, or to bear their proportion of expenses
or liabilities pursuant to this Agreement, and to the extent that arrangements
shall not have been made by you for any persons to assume the obligations of
such defaulting Underwriter or Underwriters, we agree to assume our
proportionate share, based upon our respective underwriting obligation, of the
obligations of each defaulting Underwriter without relieving any such defaulting
Underwriter of its liability therefor.

         Section 21. Legal Responsibility. As Representatives of the
Underwriters, you shall have no liability to us, except for your lack of good
faith and for obligations assumed by you in this Agreement and except that we do
not waive any rights that we may have under the 1933 Act or the 1934 Act or the
rules and regulations thereunder. No obligations not expressly assumed by you in
this Agreement shall be implied herefrom.




                                       8




<PAGE>


         Nothing herein contained shall constitute the Underwriters an
association, or partners, with you, or with each other, or, except as otherwise
provided herein or in the Purchase Agreement, render any Underwriter liable for
the obligations of any other Underwriter; and the rights, obligations and
liabilities of the Underwriters are several in accordance with their respective
underwriting obligations, and not joint.

         If the Underwriters are deemed to constitute a partnership for federal
income tax purposes, we elect to be excluded from the application of Subchapter
K, Chapter 1, Subtitle A, of the Internal Revenue Code of 1954, as amended, and
agree not to take any position inconsistent with such election, and you, as
Representatives, are authorized, in your discretion, to execute on behalf of the
Underwriters such evidence of such election as may be required by the Internal
Revenue Service.

         Unless we have promptly notified you in writing otherwise, our name as
it should appear in the Prospectus or Offering Circular and our address are set
forth on the signature pages hereof.

         Section 22. Notices. Any notice from you shall be deemed to have been
duly given if mailed or transmitted to us at our address appearing below.

         Section 23. Governing Law. This Agreement shall be governed by the laws
of the State of New York applicable to agreements made and to be performed in
such State.

         Please confirm this Agreement and deliver a copy to us.

                                                     Very truly yours,

                                                     Name of Firm:



                         By:
                             ------------------------------------------------
                                      Authorized Officer or Partner

                         Address:


                         -----------------------------------------------------


                         -----------------------------------------------------


                         -----------------------------------------------------


Confirmed as of the date first above written.

MERRILL LYNCH, PIERCE, FENNER & SMITH
     INCORPORATED


By:
     -------------------------------------------
     Name:  Fred F. Hessinger





                                       9

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2H
<SEQUENCE>5
<FILENAME>ex99-2hiii.txt
<DESCRIPTION>EXHIBIT 99.2H(III)
<TEXT>


<PAGE>


                                                               Exhibit 2(h)(iii)


[Merrill Lynch Logo]                   Merrill Lynch & Co.
                         Merrill Lynch, Pierce, Fenner & Smith Incorporated
                                Merrill Lynch World Headquarters
                                    4 World Financial Center
                                       New York, N.Y. 10800


                            STANDARD DEALER AGREEMENT
                            -------------------------


Dear Sirs:

     In connection with public offerings of securities underwritten by us, or by
a group of underwriters (the "Underwriters") represented by us, you may be
offered the opportunity to purchase a portion of such securities, as principal,
at a discount from the offering price representing a selling concession or
reallowance granted as consideration for services rendered by you in the sale of
such securities. We request that you agree to the following terms and
provisions, and make the following representations, which, together with any
additional terms and provisions set forth in any wire or letter sent to you in
connection with a particular offering, will govern all such purchases of
securities and the reoffering thereof by you.

     Your subscription to, or purchase of, such securities will constitute your
reaffirmation of this Agreement.

          1.  When we are acting as representative (the "Representative") of the
              Underwriters in offering securities to you, it should be
              understood that all offers are made subject to prior sale of the
              subject securities, when, as and if such securities are delivered
              to and accepted by the Underwriters and subject to the approval of
              legal matters by their counsel. In such cases, any order from you
              for securities will be strictly subject to confirmation and we
              reserve the right in our uncontrolled discretion to reject any
              order in whole or in part. Upon release by us, you may reoffer
              such securities at the offering price fixed by us. With our
              consent, you may allow a discount, not in excess of the
              reallowance fixed by us, in selling such securities to other
              dealers, provided that in doing so you comply with the Conduct
              Rules of the National Association of Securities Dealers, Inc. (the
              "NASD"). Upon our request, you will advise us of the identity of
              any dealer to whom you allow such a discount and any Underwriter
              or dealer from whom you receive such a discount. After the
              securities are released for sale to the public, we may vary the
              offering price and other setting terms.

          2.  You represent that you are a dealer actually engaged in the
              investment banking or securities business and that you are either
              (i) a member in good standing of the NASD or (ii) a dealer with
              its principal place of business located outside the United States,
              its territories or possessions and not registered under the
              Securities Exchange Act of 1934 (a "non-member foreign dealer") or
              (iii) a bank not eligible for membership in the NASD. If you are a
              non-member foreign dealer, you agree to make no sales of
              securities within the United States, its territories or its
              possessions or to persons who are nationals thereof or residents
              therein. Non-member foreign dealers and banks agree, in making any
              sales, to comply with the NASD's interpretation with respect to
              free-riding and withholding. In accepting a selling concession
              where we are acting as Representative of the Underwriters, in
              accepting a reallowance from us whether or not we are acting as
              such Representative, and in allowing a discount to any other
              person, you agree to comply with the provisions of Rule 2740 of
              the Conduct Rules of the NASD, and, in addition, if you are a
              non-member foreign dealer or bank, you agree to comply, as though
              you were a member of the NASD, with the provisions of Rules 2730
              and 2750 of such Conduct Rules and to comply with Rule 2420
              thereof as that Rule applies to a non-member foreign dealer or
              bank. You represent that you are fully familiar with the above
              provisions of the Conduct Rules of the NASD.



<PAGE>


          3.  If the securities have been registered under the Securities Act of
              1933 (the "1933 Act"), in offering and selling such securities,
              you are not authorized to give any information or make any
              representation not contained in the prospectus relating thereto.
              You confirm that you are familiar with the rules and policies of
              the Securities and Exchange Commission relating to the
              distribution of preliminary and final prospectuses, and you agree
              that you will comply therewith in any offering covered by this
              Agreement. If we are acting as Representative of the Underwriters,
              we will make available to you, to the extent made available to us
              by the issuer of the securities, such number of copies of the
              prospectus or offering documents, for securities not registered
              under the 1933 Act, as you may reasonably request.

          4.  If we are acting as Representative of the Underwriters of
              securities of an issuer that is not required to file reports under
              the Securities Exchange Act of 1934 (the "1934 Act"), you agree
              that you will not sell any of the securities to any account over
              which you have discretionary authority.

          5.  Payment for securities purchased by you is to be made at our
              office, One Liberty Plaza, 165 Broadway, New York, N.Y. 10006 (or
              at such other place as we may advise), at the offering price less
              the concession allowed to you, on such date as we may advise, by
              certified or official bank check in New York Clearing House funds
              (or such other funds as we may advise), payable to our order,
              against delivery of the securities to be purchased by you. We
              shall have authority to make appropriate arrangements for payment
              for and/or delivery through the facility of The Depository Trust
              Company or any such other depository or similar facility for the
              securities.

          6.  In the event that, prior to the completion of the distribution of
              securities covered by this Agreement, we purchase in the open
              market or otherwise any securities delivered to you, if we are
              acting as Representative of the Underwriters, you agree to repay
              to us for the accounts of the Underwriters the amount of the
              concession allowed to you plus brokerage commissions and any
              transfer taxes paid in connection with such purchase.

          7.  At any time prior to the completion of the distribution of
              securities covered by this Agreement you will, upon our request as
              Representative of the Underwriters, report to us the amount of
              securities purchased by you which then remains unsold and will,
              upon our request, sell to us for the account of one or more of the
              Underwriters such amount of such unsold securities as we may
              designate, at the offering price less an amount to be determined
              by us not in excess of the concession allowed to you.

          8.  If we are acting as Representative of the Underwriters, upon
              application to us, we will inform you of the states and other
              jurisdictions of the United States in which it is believed that
              the securities being offered are qualified for sale under, or are
              exempt from the requirements of, their respective securities laws,
              but we assume no responsibility with respect to your right to sell
              securities in any jurisdiction. We shall have authority to file
              with the Department of State of the State of New York a Further
              State Notice with respect to the securities, if necessary.

          9.  You agree that in connection with any offering of securities
              covered by this Agreement you will comply with the applicable
              provisions of the 1933 Act and the 1934 Act and the applicable
              rules and regulations of the Securities and Exchange Commission
              thereunder, the applicable rules and regulations of the NASD, and
              the applicable rules of any securities exchange having
              jurisdiction over the offering.

          10. We shall have full authority to take such action as we may deem
              advisable in respect of all matters pertaining to any offering
              covered by this Agreement. We shall be under no liability to you
              except for our lack of good faith and for obligations assumed by
              us in this Agreement, except that you do not waive any rights that
              you may have under the 1933 Act or the rules and regulations
              thereunder.


                                       2



<PAGE>


          11. Any notice from us shall be deemed to have been duly given if
              mailed or transmitted by any standard form of written
              telecommunications to you at the above address or at such other
              address as you shall specify to us in writing.

          12. With respect to any offering of securities covered by this
              Agreement, the price restrictions contained in Paragraph 1 hereof
              and the provisions of Paragraphs 6 and 7 hereof shall terminate as
              to such offering at the close of business on the 45th day after
              the securities are released for sale or, as to any or all such
              provisions, at such earlier time as we may advise. All other
              provisions of this Agreement shall remain operative and in full
              force and effect with respect to such offering.

          13. This Agreement shall be governed by the laws of the State of New
              York.

     Please confirm your agreement hereto by signing the enclosed duplicate copy
hereof in the place provided below and returning such signed duplicate copy to
us at World Headquarters, 4 World Financial Center, New York, N.Y. 10080,
Attention: Syndicate Operations. Upon receipt thereof, this instrument and such
signed duplicate copy will evidence the agreement between us.


                                          Very truly yours,

                                          MERRILL LYNCH, PIERCE, FENNER & SMITH
                                             INCORPORATED



                                          By:
                                             -----------------------------------
                                              Name:


Confirmed and accepted as of the
         day of            , 20


- ------------------------------------------
              Name of Dealer



- ------------------------------------------
       Authorized Officer or Partner
(if not Officer or Partner, attach copy of
        Instrument of Authorization)



                                       3


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2L
<SEQUENCE>6
<FILENAME>ex99-2li.txt
<DESCRIPTION>EXHIBIT 99.2L(I)
<TEXT>

<PAGE>

                  [LETTERHEAD OF SIMPSON THACHER & BARTLETT]


                                                               February 25, 2002


Cohen & Steers Quality Income Realty Fund, Inc.
757 Third Avenue
New York, New York 10017


Dear Ladies and Gentlemen:

     We have acted as counsel to Cohen & Steers Quality Income Realty Fund,
Inc., a closed-end management investment company organized as a Maryland
corporation (the "Company"), in connection with the Registration Statement on
Form N-2, File Nos. 333-68150 and 811-10481, (the "Registration Statement"),
filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"), relating
to the issuance of shares of its Common Stock, par value $.001 per share (the
"Shares") in connection with the offering described in the Registration
Statement.

     We have examined the Registration Statement and a specimen share
certificate which has been filed with the Commission as an exhibit to the
Registration Statement. We also have examined the originals, or duplicates or
certified or conformed copies, of such records, agreements, instruments and
other documents and have made such other and further investigations as we have
deemed relevant and necessary in connection with the opinions expressed herein.
As to questions of fact material to this opinion, we have relied upon
certificates of public officials and of officers and representatives of the
Company.

     In such examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as


<PAGE>


Cohen & Steers Quality Income Realty Fund, Inc.                February 25, 2002

originals, the conformity to original documents of all documents submitted to us
as duplicates or certified or conformed copies, and the authenticity of the
originals of such latter documents.

     Based on the foregoing, and subject to the qualifications and limitations
stated herein, we are of the opinion that when the Board of Directors of the
Company has taken all necessary corporate action to authorize and approve the
issuance of the Shares and upon payment and delivery in accordance with the
applicable definitive underwriting agreement approved by the Board of Directors
of the Company, the Shares will be validly issued, fully paid and nonassessable.

     Insofar as the opinions expressed herein relate to or are dependent upon
matters governed by the laws of the State of Maryland, we have relied upon the
opinion of Venable, Baetjer and Howard, LLP dated the date hereof.

     We are members of the Bar of the State of New York, and we do not express
any opinion herein concerning any law other than the law of the State of New
York and to the extent set forth herein, the Maryland General Corporation Law.

     We hereby consent to the filing of this opinion letter as Exhibit 2(l)(i)
to the Registration Statement and to the use of our name under the caption
"Validity of the Shares" in the Prospectus included in the Registration
Statement.

                                       Very truly yours,



                                        /s/ SIMPSON THACHER & BARTLETT
                                        SIMPSON THACHER & BARTLETT








                                       2

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2L
<SEQUENCE>7
<FILENAME>ex99-2lii.txt
<DESCRIPTION>EXHIBIT 99.2L(II)
<TEXT>



<PAGE>



                                February 25, 2002


Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York  10017-3909

            Re: Cohen & Steers Quality Income Realty Fund, Inc.
                -----------------------------------------------

Ladies and Gentlemen:

                  We have acted as special Maryland counsel for Cohen & Steers
Quality Income Realty Fund, Inc., a Maryland corporation (the "Company"), in
connection with the organization of the Company and the issuance of shares of
its Common Stock, par value $.001 per share (the "Shares").

                  As special Maryland counsel for the Company, we are familiar
with its Charter and Bylaws. We have examined the prospectus included in its
Registration Statement on Form N-2, File No. 333-68150 (the "Registration
Statement"), substantially in the form in which it is to become effective (the
"Prospectus"). We have further examined and relied on a certificate of the
Maryland State Department of Assessments and Taxation to the effect that the
Company is duly incorporated and existing under the laws of the State of
Maryland and is in good standing and duly authorized to transact business in the
State of Maryland.

                  We have also examined and relied on such corporate records of
the Company and other documents and certificates with respect to factual matters
as we have deemed necessary to render the opinion expressed herein. We have
assumed, without independent verification, the genuineness of all signatures on
documents submitted to us for examination, the authenticity of all documents
submitted to us as originals, and the conformity with originals of all documents
submitted to us as copies.

                  Based on such examination, we are of the opinion that:




<PAGE>



Simpson Thacher & Bartlett
February 25, 2002
Page 2



                  1.       The Company is duly organized and validly existing as
                           a corporation in good standing under the laws of the
                           State of Maryland.

                  2.       When the Board of Directors of the Company has taken
                           all necessary corporate action to authorize and
                           approve the issuance of the Shares and upon payment
                           and delivery in accordance with the applicable
                           definitive underwriting agreement approved by the
                           Board of Directors of the Company, the Shares will be
                           validly issued, fully paid and nonassessable.

                  This letter expresses our opinion with respect to the Maryland
General Corporation Law governing matters such as due organization and the
authorization and issuance of stock. It does not extend to the securities or
"Blue Sky" laws of Maryland, to federal securities laws or to other laws.

                  You may rely on this opinion in rendering your opinion to the
Company that is to be filed as an exhibit to the Registration Statement. We
consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to us in the Prospectus under the caption
"Validity Of The Shares." We do not thereby admit that we are "experts" within
the meaning of the Securities Act of 1933 and the regulations thereunder. This
opinion may not be relied on by any other person or for any other purpose
without our prior written consent.


                                       Very truly yours,

                                       /s/ Venable, Baetjer and Howard, LLP





</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2N
<SEQUENCE>8
<FILENAME>ex99-2n.txt
<DESCRIPTION>EXHIBIT 99.2N
<TEXT>



<PAGE>

                       CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to use in this Registration Statement on Form N-2 of our
report dated February 19, 2002, relating to the financial statements of Cohen &
Steers Quality Income Realty Fund, Inc. as of February 15, 2002, which appear in
such Registration Statement. We also consent to the reference to us under the
heading "Counsel and Independent Accountants" in such Registration Statement.

PricewaterhouseCoopers LLP
New York, New York

February 22, 2002




</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
